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Harmful Addiction

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Author Info
FARUK GUL
WOLFGANG PESENDORFER

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Abstract

We construct an infinite horizon model of harmful addiction. Consumption is" compulsive "if it differs from what the individual would have chosen had commitment been available. A good is" addictive "if its consumption leads to more compulsive consumption of the same good. We analyse the welfare implications of drug policies and find that taxes on drugs decrease welfare while prohibitive policies may increase welfare. We also analyse the agent's demand for voluntary commitment ("rehab"). For appropriate parameters, the model predicts a" cycle of addiction "where the agent periodically checks into rehab. Between these visits his drug consumption increases each period. Copyright 2007 The Review of Economic Studies Limited.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-937X.2007.00417.x
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Publisher Info
Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 74 (2007)
Issue (Month): 1 (01)
Pages: 147-172
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Handle: RePEc:bla:restud:v:74:y:2007:i:1:p:147-172

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