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Rationally addicted to drinking and smoking?

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  • Mikael Bask
  • Maria Melkersson

Abstract

When modelling demand for addictive consumption goods, the most widely used framework is the rational addiction model proposed by Becker and Murphy. This paper extends the rational addiction model to include two addictive consumption goods, alcohol and cigarettes, and using aggregate annual time series on sales volumes for the period 1955-1999, estimates the aggregate demand for these goods in Sweden, where OLS estimates are compared to GMM estimates allowing for possible endogeneity of lagged and lead consumption. First, the demand for alcohol and cigarettes are estimated as separate equations and it is found that alcohol demand is quite well described by the rational addiction model while the same is not true for cigarettes. The own-price elasticities are negative, and alcohol demand is more elastic than cigarette demand. The cross-price elasticities are also negative, showing that alcohol and cigarettes are complements. Since consumption of alcohol and cigarettes are probably simultaneous decisions, the demand for these goods is estimated as a system of equations and it is found that alcohol demand is still positively affected by lagged and lead consumption while cigarette demand is not. It is also found that the elasticities obtained are now generally smaller compared to when estimating the equations separately.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 36 (2004)
Issue (Month): 4 ()
Pages: 373-381

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Handle: RePEc:taf:applec:v:36:y:2004:i:4:p:373-381

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Citations

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Cited by:
  1. Göhlmann, Silja & Requate, Till & Schmidt, Christoph M & Tauchmann, Harald, 2008. "Tobacco and Alcohol: Complements or Substitutes? A Structural Model Approach," CEPR Discussion Papers 6780, C.E.P.R. Discussion Papers.
  2. Koksal, Aycan & Wohlgenant, Michael, 2013. "Interdependence of Tobacco and Alcohol Consumption: A Natural Experiment Approach," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150459, Agricultural and Applied Economics Association.
  3. Aliaksandr Amialchuk & Kateryna Bornukova & Mir M. Ali, 2012. "Smoking and Obesity Revisited: Evidence from Belarus," BEROC Working Paper Series 19, Belarusian Economic Research and Outreach Center (BEROC).
  4. Junmin Wan, 2004. "Cigarette Tax Revenues and Tobacco Control in Japan," Discussion Papers in Economics and Business 04-11-Rev, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Feb 2006.
  5. Sara Markowitz & John Tauras, 2006. "Even For Teenagers, Money Does Not Grow on Trees: Teenage Substance Use and Budget Constraints," NBER Working Papers 12300, National Bureau of Economic Research, Inc.
  6. Pierpaolo Pierani & Silvia Tiezzi, 2009. "Addiction and interaction between alcohol and tobacco consumption," Empirical Economics, Springer, vol. 37(1), pages 1-23, September.
  7. Frank Sloan & Alyssa Platt, 2011. "Information, risk perceptions, and smoking choices of youth," Journal of Risk and Uncertainty, Springer, vol. 42(2), pages 161-193, April.
  8. Sara Markowitz & John Tauras, 2009. "Substance use among adolescent students with consideration of budget constraints," Review of Economics of the Household, Springer, vol. 7(4), pages 423-446, December.
  9. Koksal, Aycan & Wohlgenant, Michael, 2013. "Pseudo Panel Data Estimation Technique and Rational Addiction Model: An Analysis of Tobacco, Alcohol and Coffee Demands," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150457, Agricultural and Applied Economics Association.
  10. D. Dragone & F. Manaresi & L. Savorelli, 2013. "Obesity and smoking: can we catch two birds with one tax?," Working Papers wp873, Dipartimento Scienze Economiche, Universita' di Bologna.
  11. Fang, Hai & Ali, Mir M. & Rizzo, John A., 2009. "Does smoking affect body weight and obesity in China?," Economics & Human Biology, Elsevier, vol. 7(3), pages 334-350, December.
  12. David Aristei & Luca Pieroni, 2008. "A double-hurdle approach to modelling tobacco consumption in Italy," Applied Economics, Taylor & Francis Journals, vol. 40(19), pages 2463-2476.
  13. Ana Gil & José Molina, 2009. "Alcohol demand among young people in Spain: an addictive QUAIDS," Empirical Economics, Springer, vol. 36(3), pages 515-530, June.
  14. Jeffrey S. DeSimone, 2010. "Fraternity Membership & Frequent Drinking," NBER Working Papers 16291, National Bureau of Economic Research, Inc.
  15. Michael T. Owyang & E. Katarina Vermann, 2012. "Where there’s a smoking ban, there’s still fire," Review, Federal Reserve Bank of St. Louis, issue July, pages 265-286.
  16. Harald Tauchmann & Silja Lenz & Till Requate & Christoph Schmidt, 2013. "Tobacco and alcohol: complements or substitutes?," Empirical Economics, Springer, vol. 45(1), pages 539-566, August.
  17. Requate, Till & Göhlmann, Silja & Tauchmann, Harald & Schmidt, Christoph M., 2006. "Tobacco and alcohol: complements or substitutes? : a statistical Guinea Pig approach," Economics Working Papers 2006,18, Christian-Albrechts-University of Kiel, Department of Economics.
  18. Pinka Chatterji & Jeffrey DeSimone, 2006. "High School Alcohol Use and Young Adult Labor Market Outcomes," NBER Working Papers 12529, National Bureau of Economic Research, Inc.

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