Alcohol consumption by youth: Peers, parents, or prices?

• Peer effects and price effects are estimated for adolescent drinking.
• Peer drinking has a significant effect on drinking participation of adolescents.
• Alcohol prices do not affect adolescent alcohol consumption.

Using data from the National Longitudinal Survey of Adolescent to Adult Health, we estimate the effect of peers’ alcohol consumption and alcohol prices on the drinking habits of high-school-age youth. We use the two-stage residual inclusion method to account for the endogeneity of peer drinking in nonlinear models. For our sample of high school students, we find that peer effects are statistically and economically significant regarding the choice to participate in drinking but are not significant for the frequency of drinking, including binge drinking. Regarding alcohol prices, even though we have good price variation in our sample, alcohol prices are not found to be significant. The results are important for policymakers who are considering policies to reduce underage drinking, as we conclude that no significant impact on underage drinking will result from low-tax states’ increasing excise taxes on alcohol so they are similar to those of high-tax states. Policymakers may choose to focus instead on the influence of peers and changing the social norm behavior.