Seminar ‘How Persistent Are Consumption Habits? Micro-Evidence from Russian Men’

On May 26 a joint research seminar of the Laboratory for Labour Market Studies and the Centre for Labour Market Studies was held at HSE. Evgeny Yakovlev, Assistant Professor at the Department of Applied Economics delivered the report ‘How Persistent Are Consumption Habits? Micro-Evidence from Russian Men’, co-authored by  Lorenz Kueng (Northwestern University’s Kellogg School of Management and NBER).

On May 26 a joint research seminar of the Laboratory for Labour Market Studies and the Centre for Labour Market Studies was held at HSE. Evgeny Yakovlev, Assistant Professor at the Department of Applied Economics delivered the report ‘How Persistent Are Consumption Habits? Micro-Evidence from Russian Men’, co-authored by  Lorenz Kueng (Northwestern University’s Kellogg School of Management and NBER).

Abstract:

We use the Anti-Alcohol Campaign in 1986 and the rapid expansion of the beer market after the collapse of the Soviet Union as two quasi-natural experiments to identify highly persistent habit formation in alcohol consumption among Russian males. Importantly, these results apply to all levels of alcohol consumption and are not driven by heavy drinking or alcoholism. The two large shocks combined with persistent habits lead to large cohort differences in consumer behavior even decades later. We derive a basic model of habit formation with homogeneous preferences over two habit-forming goods which is consistent with these facts. Using placebo tests as well as simple descriptive statistics we show that habits are formed during early adulthood and remain largely unaffected afterward. The main alternative hypotheses such as income effects, unobserved taste heterogeneity, stepping-stone effects, and changes in culture or social norms are inconsistent with those patterns. Finally, our results suggest that male mortality in Russia will decrease by one-fifth within ten years even under current policies and prices due to the long-run consequences of the large changes in the alcohol market. Moreover, our policy simulations indicate that the government policy toward the substitution of vodka and other hard drinks with safer beer will result in further significant reduction in male mortality rates. 

Text of the report