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Back to the future? Habits and rational addiction in UK tobacco and alcohol demand

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  • L. Fanelli

    ()

  • M. Mazzocchi

    ()

Abstract

This paper develops a dynamic modeling approach for the Almost Ideal Demand System, which is consistent with the rational addiction theory. The forward-looking hypothesis is combined with that of convex adjustment costs in the presence of non-stationary cointegrated variables. Estimation is based on a two-step strategy based on cointegration and GMM techniques. Results on UK tobacco and alcohol demand support the adopted specifications and highlight the degree of complementarity between addictive goods.

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File URL: http://amsacta.cib.unibo.it/archive/00002162/01/FM_Res.pdf
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Bibliographic Info

Paper provided by Department of Statistics, University of Bologna in its series Quaderni di Dipartimento with number 0.

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Date of creation: 2004
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Handle: RePEc:bot:quadip:10

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