HEALTH ECONOMICS Health Econ. 17: 41–54 (2008) Published online 2 April 2007 in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/hec.1232 CARE-GIVER ADVICE AS A PREVENTIVE MEASURE FOR DRINKING DURING PREGNANCY: ZEROS, CATEGORICAL OUTCOME RESPONSES, AND ENDOGENEITY JOSEPH V. TERZA a, *, DONALD S. KENKEL b , TSUI-FANG LIN c and SHINICHI SAKATA d a Department of Epidemiology and Health Policy Research, University of Florida, Gainesville, FL, USA b Department of Policy Analysis and Management, Cornell University, Ithaca, NY, USA c Department of Public Finance, National Taipei University, Taipei, Taiwan d Department of Economics, The University of British Columbia, Vancouver, BC, Canada SUMMARY We conduct an empirical investigation of the impact of prenatal care-giver advice on alcohol consumption by pregnant women. In the design of the model and estimator, we pay particular attention to three aspects of the data. First, a large proportion of pregnant women do not drink at all. To accommodate this aspect of the sample we base the essential formulation of the model on the modified version of the two-part approach of Duan et al.(Journal of Business and Economic Statistics 1983; 1: 115–126.) suggested by Mullahy (Journal of Health Economics 1998; 17: 247–281.). Second, in the survey that we analyze (the 1988 National Maternal and Infant Health Survey – NMIHS), respondents were only required to report their consumption up to a specified range of values (e.g. 1–2 drinks per week, 2–5 drinks per week, and so on). For this reason, the model is cast in the grouped regression framework of Stewart (Review of Economic Studies 1983; 50: 141–149.). Third, the binary physician advice variable is likely to be endogenous and the econometric specification explicitly accounts for this possibility. To summarize the results, we find that failing to account for endogeneity leads to the counterintuitive conclusion that advice has a positive and statistically significant influence on drinking during pregnancy. When the model is extended to allow for potential endogeneity, we find that advice has a negative and statistically significant impact. Copyright # 2007 John Wiley & Sons, Ltd. Received 12 November 2005; Revised 22 January 2007; Accepted 9 February 2007 JEL classification: I18; C21; C24 KEY WORDS: brief intervention; endogeneity; control function estimation INTRODUCTION Although the abuse of alcohol has a variety of public health consequences, alcohol consumption by pregnant women is of special concern because of the health risks for the fetus which include: alcohol- related birth defects (ARBD); alcohol-related neurodevelopmental disorders (ARND); and, at the extreme end of the spectrum of fetal alcohol effects (FAE), fetal alcohol syndrome (FAS) which is a medical diagnosis based on a constellation of abnormalities due to maternal alcohol consumption. A recent review concluded that the prevalence of FAS in the general population is between 0.5 and 3 per 1000 births, while the prevalence of FAS and ARBD is at least 10 per 1000 births (May and Gossage, 2001). The Institute of Medicine (IOM) (1996) states that FAS ‘is arguably the most common known *Correspondence to: Department of Epidemiology and Health Policy Research, University of Florida, Gainesville, FL, 32610- 0147, USA. E-mail: jvt@ichp.ufl.edu Copyright # 2007 John Wiley & Sons, Ltd.