Agricultural Economics Society awards SCI researcher27 March 2012
Dr Luca Panzone is one of only two winners of this year's Agricultural Economics Society essay competition for his essay entitled 'Alcohol tax, price-quality proxy and discounting: a reason why alcohol taxes may rebound'. The paper shows how altering the price through an alcohol-tax can effectively increase the perception of quality of a wine, which is known consumers infer from the full price of the good. This is a problem in the presence of discounts because the full price of the good (an External Reference Price, or ERP) is always present, and consumers tend to purchase more expensive wines with higher discounts. By placing a tax, the consumer would tend to buy the product with the highest price after tax, which is perceived as higher quality, benefiting then from the discount.
Note also that alcohol taxes are proportional to alcohol content, so that the consumer would inevitably end up favouring wines with more alcohol in them. The whole process appears to be unconscious. He shows the implication using an empirical survey, which supports his point. Consequently, if policymakers want to increase alcohol taxes, they will have to regulate discounts in the sector too.
The paper is available to read as a PDF by following the link to the right. It will appear in the Journal of Agricultural Economics in the coming months.