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The price elasticity of quantity, and of quality, for tobacco products

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  • John Gibson
  • Bonggeun Kim

Abstract

We use household survey data to estimate the price elasticity of quantity, and of quality, for tobacco products. In our data, commonly used estimation methods suggest an own‐price elasticity of demand of about −1. These methods add together responses on the quantity margin and the quality margin. Just one third of the response to price is from quantity and two thirds is from quality. The simulated effect of higher excise taxes is to reduce overall quantity by just one third of what is predicted if the quality response is ignored. Higher taxes also shift demand to lower quality tobacco products.

Suggested Citation

  • John Gibson & Bonggeun Kim, 2019. "The price elasticity of quantity, and of quality, for tobacco products," Health Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 587-593, April.
    • Handle: RePEc:wly:hlthec:v:28:y:2019:i:4:p:587-593
    DOI: 10.1002/hec.3857
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    References listed on IDEAS

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    1. Xiaohui Hou & Xiaochen Xu & Ian Anderson, 2015. "Determinants of Tobacco Consumption in Papua New Guinea: Challenges in Changing Behaviours," Asia and the Pacific Policy Studies, Wiley Blackwell, vol. 2(2), pages 255-265, May.
    2. Angus Deaton, 1991. "Price Elasticities from Survey Data: Extensions and Indonesian Results," International Economic Association Series, in: Marc Nerlove (ed.), Issues in Contemporary Economics, chapter 10, pages 253-283, Palgrave Macmillan.
    3. McKelvey, Christopher, 2011. "Price, unit value, and quality demanded," Journal of Development Economics, Elsevier, vol. 95(2), pages 157-169, July.
    4. Xiaohui Hou, 2015. "Tobacco Consumption in Papua New Guinea," Health, Nutrition and Population (HNP) Knowledge Briefs 96795, The World Bank.
    5. Gibson, John & Kim, Bonggeun, 2019. "Quality, quantity, and spatial variation of price: Back to the bog," Journal of Development Economics, Elsevier, vol. 137(C), pages 66-77.
    6. Yi‐Wen Tsai & Chung‐Lin Yang & Chin‐Shyan Chen & Tsai‐Ching Liu & Pei‐Fen Chen, 2005. "The effect of Taiwan's tax‐induced increases in cigarette prices on brand‐switching and the consumption of cigarettes," Health Economics, John Wiley & Sons, Ltd., vol. 14(6), pages 627-641, June.
    7. Yuyu Chen & Weibo Xing, 2016. "Quantity, Quality, and Regional Price Variation of Cigarettes: Demand Analysis Based on a Household Survey in China," World Scientific Book Chapters, in: Teh-wei Hu (ed.), Economics of Tobacco Control in China From Policy Research to Practice, chapter 5, pages 61-87, World Scientific Publishing Co. Pte. Ltd..
    8. Xiaohui Hou & Xiaochen Xu & Ian Anderson, 2015. "Determinants of Tobacco Consumption in Papua New Guinea: Challenges in Changing Behaviours," Asia and the Pacific Policy Studies 201521, Crawford School of Public Policy, The Australian National University.
    9. Gibson, John & Kim, Bonggeun, 2015. "Hicksian separability does not hold over space: Implications for the design of household surveys and price questionnaires," Journal of Development Economics, Elsevier, vol. 114(C), pages 34-40.
    10. Hou,Xiaohui & Xu,Xiaochen & Anderson,Ian, 2015. "Determinants of tobacco consumption in Papua New Guinea : challenges in changing behaviors," Policy Research Working Paper Series 7302, The World Bank.
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    Cited by:

    1. Enayatollah Homaie Rad & Mohammad Habibullah Pulok & Satar Rezaei & Anita Reihanian, 2021. "Quality and quantity of price elasticity of cigarette in Iran," International Journal of Health Planning and Management, Wiley Blackwell, vol. 36(1), pages 60-70, January.
    2. Daejung Kim & Cynthia Chen & Bryan Tysinger & Sungchul Park & Ming Zhe Chong & Lijia Wang & Michelle Zhao & Jian‐Min Yuan & Woon‐Puay Koh & Joanne Yoong & Jay Bhattacharya & Karen Eggleston, 2021. "Smoking, life expectancy, and chronic disease in South Korea, Singapore, and the United States: A microsimulation model," Health Economics, John Wiley & Sons, Ltd., vol. 30(S1), pages 92-104, November.

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