ECON2061: Econometrics Assesssment

Assignment Overview

The country of Vodlandia has high rates of alcohol consumption. Unlike most developed nations, in Vodlandia, vodka is the only alcoholic beverage, and it has been quite affordable for reasons beyond the scope of this assessment. Therefore, one of the suggested explanations for historically high vodka consumption rates is that vodka prices have been too low to encourage moderation and discourage excessive drinking. Policy makers also suspect that cross-regional differences in alcohol consumption are partly explained by the fact that in some counties restaurants are not allowed to serve alcoholic beverages, while in others there is no such restriction on restaurants.

To assess the potential impact of vodka prices on consumption, the federal government conducted a nationwide policy experiment by imposing different levels of taxes on vodka in randomly selected counties. Before the policy experiment, alcohol prices were identical in all counties and equal to 10 Vodlandia dollars per bottle of vodka (750 ml in volume). This experiment resulted in differences in vodka prices across counties. Since by law, one must present an ID to prove registration in a county to buy alcohol there, even after the tax experiment, there was no way for people to purchase vodka outside their own county of residence.

Twelve months after the policy experiment, a survey was conducted for a random sample of individuals from all counties. The survey sample was representative of the relevant population in each county. The survey collected data on vodka consumption behaviour and some other individual characteristics. The after-tax vodka prices in each county are also included in the data. These prices remained unchanged over the next twelve months following the policy experiment.

Your mission is to conduct empirical analyses to evaluate whether increasing alcohol prices is an effective way to reduce vodka consumption rates and, if possible, compare your findings with the effect of alcohol ban in restaurants. Write a report that aims to inform government policy using appropriate methods that you have learned in this module so far. In your report, you should formulate hypotheses relevant to your research goal, carefully explore and describe the relevant characteristics of the data, generate new variables or recode existing variables (if needed) using the existing information in your sample, specify and run appropriate regression models, and interpret your results to provide evidence-based recommendations. At the end of your report, you are also invited to discuss limitations of your analysis (if any).

For the empirical analysis, download the dataset corresponding to your student identification number. It consists of information on 807 individuals who were living in their current county of residence at the time of the tax experiment and never moved during the subsequent twelve months. In addition to respondent and county identifiers, the data includes information on education, age, income, gender, price of vodka, whether there is a ban on vodka consumption in restaurants in the county where the respondent lives, and the self-reported amount of vodka (in ml) each respondent consumes per week. Each of you has a different sample to analyse. Variable descriptions are provided below:

Variable Descriptions

• individual_id: Individual identification number

• county_id: County of residence

• vcons: Amount of vodka consumed per day (in ml)

• vprice: Vodka price after tax experiment in the county of residence, Vodlandia dollars per bottle (750 ml)

• alcoban: Equals 1 if alcohol consumption is forbidden in restaurants located in the county of residence

• female: Equals 1 if respondent is female

• educ: Years of schooling

• income: Income in Vodlandia dollars

• age: Age (in years)

Overall word limit: 1,500 words

Assignments should be typed, using 1.5 spacing and an easy-to-read 12-point font. Assignments and dissertations/business projects must not exceed the word count indicated in the module handbook/assessment brief.

 The word count should:

• Include all the text, including title, preface, introduction, in-text citations, quotations, footnotes and any other items not specifically excluded below.
• Exclude diagrams, tables (including tables/lists of contents and figures), equations, executive summary/abstract, acknowledgements, declaration, bibliography/list of references and appendices. However, it is not appropriate to use diagrams or tables merely as a way of circumventing the word limit. If a student uses a table or figure as a means of presenting his/her own words, then this is included in the word count.

Examiners will stop reading once the word limit has been reached, and work beyond this point will not be assessed. Checks of word counts will be carried out on submitted work, including any assignments or dissertations/business projects that appear to be clearly over-length. Checks may take place manually and/or with the aid of the word count provided via an electronic submission. Where a student has intentionally misrepresented their word count, the School may treat this as an offence under Section IV of the General Regulations of the University. Extreme cases may be viewed as dishonest practice under Section IV, 5 (a) (x) of the General Regulations.

Very occasionally it may be appropriate to present, in an appendix, material which does not properly belong in the main body of the assessment but which some students wish to provide for the sake of completeness. Any appendices will not have a role in the assessment - examiners are under no obligation to read appendices and they do not form part of the word count. Material that students wish to be assessed should always be included in the main body of the text.

Summary of Assessment Requirements

The assessment focuses on evaluating the impact of vodka prices and restaurant alcohol bans on alcohol consumption in the fictional country of Vodlandia. Students are tasked with conducting an empirical analysis using survey data collected after a nationwide policy experiment in which different counties experienced varying vodka prices due to taxes. Key points to be addressed include:

1. Research Objective: Examine whether higher vodka prices reduce vodka consumption and compare this with the effect of alcohol bans in restaurants.

2. Hypothesis Formulation: Develop hypotheses relevant to the impact of vodka pricing and restaurant bans on alcohol consumption.

3. Data Exploration: Describe and analyze the characteristics of the dataset, which includes individual-level information such as age, gender, education, income, county of residence, vodka consumption, vodka price, and alcohol ban status.

4. Variable Handling: Generate new variables or recode existing ones where necessary to facilitate analysis.

5. Model Specification: Specify and run appropriate regression models to quantify the relationship between vodka consumption and its determinants.

6. Interpretation and Recommendations: Provide evidence-based insights and policy recommendations based on statistical results.

7. Limitations: Discuss any limitations in the analysis, such as potential biases, sample constraints, or model assumptions.

8. Formatting Requirements: The report should be typed, 1.5 spaced, 12-point font, and within a 1,500-word limit. The word count includes all text but excludes diagrams, tables, equations, references, and appendices.

Step-by-Step Academic Mentor Guidance

To guide the student, the Academic mentor approached the assessment as follows:

1. Understanding the Problem:

   • The mentor began by helping the student fully understand the context: Vodlandia’s high vodka consumption, price variations, and the alcohol ban in some counties.

   • Emphasis was placed on connecting policy interventions (price changes and bans) to behavioral outcomes.

2. Hypothesis Development:

   • The mentor instructed the student to formulate clear hypotheses, such as:

     • H1: Higher vodka prices reduce vodka consumption.

     • H2: Alcohol bans in restaurants lead to lower vodka consumption.

   • The student was guided on linking hypotheses directly to policy relevance.

3. Data Familiarization and Cleaning:

   • The mentor explained how to examine the dataset, check for missing values, and understand variable distributions.

   • Guidance was provided on generating new variables if needed, e.g., creating a categorical variable for price ranges or converting vodka consumption to weekly totals.

4. Exploratory Data Analysis (EDA):

   • Step-by-step instructions were given for visualizing data patterns, such as plotting vodka consumption against price, age, or education levels.

   • The mentor encouraged calculating summary statistics (mean, median, standard deviation) for key variables.

5. Regression Model Specification:

   • The mentor helped the student choose an appropriate regression model (e.g., linear regression) and explain why it fits the research question.

   • Independent variables suggested included vodka price, alcohol ban status, gender, age, education, and income.

   • The student was guided to carefully check assumptions of regression (linearity, homoscedasticity, multicollinearity).

6. Running the Analysis:

   • The mentor assisted with coding or executing the regression, ensuring correct interpretation of coefficients.

   • Emphasis was placed on understanding the economic and policy meaning of each coefficient, not just statistical significance.

7. Interpreting Results and Making Recommendations:

   • The mentor explained how to translate regression outcomes into practical policy recommendations.

   • For example, if vodka price increases are significantly associated with reduced consumption, the student could suggest taxation as an effective policy tool.

   • Alcohol ban effects were compared to price effects to evaluate relative impact.

8. Addressing Limitations:

   • Guidance was given to critically assess the analysis, considering issues like sample size, self-reporting biases, and external validity.

9. Report Writing and Formatting:

   • The mentor reviewed word limits, font, spacing, and structure.

   • Tips were provided for including all required sections: introduction, methodology, results, discussion, conclusion, and references.

Final Outcome and Learning Objectives Covered

By following this structured guidance:

• The student produced a comprehensive report analyzing the effect of vodka pricing and restaurant alcohol bans on consumption.

• Hypotheses were clearly stated and tested using regression analysis.

• Data was explored, cleaned, and visualized, demonstrating strong analytical skills.

• The regression results were interpreted to provide evidence-based recommendations for policy makers.

• Limitations of the study were acknowledged, showing critical thinking.

• The report adhered to academic writing standards, formatting, and word limits.

Learning Objectives Achieved:

1. Develop research questions and hypotheses grounded in policy relevance.

2. Conduct data exploration, cleaning, and variable transformation.

3. Apply regression analysis to real-world data.

4. Interpret statistical results in the context of economic and policy outcomes.

5. Communicate findings in a structured, clear, and academically rigorous report.

6. Critically evaluate the strengths and limitations of empirical analyses.

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