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Is the Rational Addiction model inherently impossible to estimate?

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  • Audrey Laporte
  • Adrian Rohit Dass
  • Brian Ferguson

Abstract

The Rational Addiction (RA) model is increasingly often estimated using individual level panel data with mixed results; in particular, with regard to the implied rate of time discount. This paper suggests that the odd values of the rate of discount frequently found in the literature may in fact be a consequence of the saddle-point dynamics associated with individual level inter-temporal optimization problems. We report the results of Monte Carlo experiments estimating RA-type difference equations that seem to suggest the possibility that the presence of both a stable and an unstable root in the dynamic process may create serious problems for the estimation of RA equations.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Audrey Laporte & Adrian Rohit Dass & Brian Ferguson, 2015. "Is the Rational Addiction model inherently impossible to estimate?," Working Papers 150011, Canadian Centre for Health Economics, revised Jun 2016.
    • Handle: RePEc:cch:wpaper:150011
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    References listed on IDEAS

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    13. Auld, M. Christopher & Grootendorst, Paul, 2004. "An empirical analysis of milk addiction," Journal of Health Economics, Elsevier, vol. 23(6), pages 1117-1133, November.
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    Cited by:

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    2. Strulik, Holger, 2018. "Smoking kills: An economic theory of addiction, health deficit accumulation, and longevity," Journal of Health Economics, Elsevier, vol. 62(C), pages 1-12.
    3. Pierani, P.; Tiezzi, S.;, 2017. "Rational addiction and time consistency:an empirical test," Health, Econometrics and Data Group (HEDG) Working Papers 17/05, HEDG, c/o Department of Economics, University of York.
    4. Piccoli, Luca & Tiezzi, Silvia, 2021. "Rational addiction and time-consistency: An empirical test," Journal of Health Economics, Elsevier, vol. 80(C).
    5. Dragone, Davide & Raggi, Davide, 2021. "Resolving the milk addiction paradox," Journal of Health Economics, Elsevier, vol. 77(C).
    6. D. Dragone & D. Raggi, 2018. "Testing Rational Addiction: When Lifetime is Uncertain, One Lag is Enough," Working Papers wp1119, Dipartimento Scienze Economiche, Universita' di Bologna.
    7. Philip DeCicca & Donald Kenkel & Feng Liu & Hua Wang, 2017. "Behavioral Welfare Economics and FDA Tobacco Regulations," Advances in Health Economics and Health Services Research, in: Human Capital and Health Behavior, volume 25, pages 143-179, Emerald Group Publishing Limited.
    8. Robert Kaestner & Kevin Callison, 2018. "An Assessment of the Forward‐Looking Hypothesis of the Demand for Cigarettes," Southern Economic Journal, John Wiley & Sons, vol. 85(1), pages 48-70, July.

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    More about this item

    Keywords

    Rational Addiction model; dynamic time series; dynamic panel;
    All these keywords.

    JEL classification:

    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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