Association for Public Policy Analysis & Management

The abuse of alcohol has been strongly linked with health, education, and other social outcomes. It has, therefore, received attention from economists and researchers. However, identifying the causal effect of alcohol consumption on social outcome has been difficult problem due to the endogeneity problem.

In this paper, I address the potential endogeneity of alcohol consumption by exploiting the quasi-experimental setting in South Korea. Two different policies- minimum legal drinking age (MLDA) and school attendance law which accepts the student at the younger than stipulated age-allows us to identify the pure peer effect on the decision to drink as well as the effect of alcohol consumption on social outcomes. These effects are no longer subject to the endogeneity problem through implementing a regression discontinuity design (RD).

This RD design uses the fact that these two different laws produce a difference in alcohol access for young adults. MLDA in South Korea depends on the individuals’ birth year rather than birthday. The legal access to alcohol is allowed from the 1^st day of the year an individual becomes 19 no matter their actual day of birth. The MLDA further complicated by the school attendance law. The school attendance cutoff is in March, resulting in children born in January and February going to school with children nearly a year older than themselves. The combination of these two laws results in a peer group with both drinking eligible and drinking ineligible members.

This paper first empirically examines the peer effect on young adults’ drinking behavior. I use the data from the Korean Labor and Income Panel Study (KLIPS) to evaluate the strength of peer group influences on the consumption of alcohol by young adults.

I analyzed a group of individuals who were in the same school cohort but are not necessarily of the same age. The eligibility of alcohol consumption comes from the biological age not from the social age. The only factor that affects the composition of this group is the month of birth, which has been proven to be exogenous by previous literature. By comparing the drinking incidence between individuals with different eligibility to drink, I find that having a peer who has legal access to alcohol leads to an increase in alcohol consumption among the individuals who are not eligible to drink. 40% of ineligible individuals who have eligible peers in their cohort consume alcohol, though the average drinking rate for the eligible group is 60%. Furthermore, I found that when a peer group only has ineligible drinkers, a mere 10% of these individuals drink.

This paper is expected to makes two main contributions to the existing literature. First, using a quasi-experimental setting in South Korea, this study provides new estimates of the effects of having mixed eligibility peer groups. Secondly, I will investigate the impact of alcohol consumption on social outcomes of these groups, including educational performance and health-related issues. The discrete jump in alcohol consumption for the ineligible members has an expected negative spillover effect on these outcomes.