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Tobacco and Alcohol: Complements or Substitutes? A Structural Model Approach

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Author Info
Göhlmann, Silja
Requate, Till
Schmidt, Christoph M
Tauchmann, Harald

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Abstract

The question of whether two drugs – namely alcohol and tobacco – are used as complements or substitutes is of crucial interest if side-effects of anti-smoking policies are considered. Numerous papers have empirically addressed this issue by estimating demand systems for alcohol and tobacco and subsequently calculating cross-price effects. However, this traditional approach often is seriously hampered by insufficient price-variation observed in survey data. We therefore suggest an alternative instrumental variables approach that statistically mimics an experimental study and does not rely on prices as explanatory variables. This approach is applied to German survey data. Our estimation results suggest that a reduction in tobacco consumption results in a moderate reduction in alcohol consumption. It is shown theoretically that this implies that alcohol and tobacco are complements. Hence, we conclude that successful anti-smoking policies will not result in the unintended side-effect of an increased (ab)use of alcohol.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6780.

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Date of creation: Apr 2008
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Handle: RePEc:cpr:ceprdp:6780

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Related research
Keywords: complements or substitutes; instrumental variables approach; insufficient price-variation; interdependence in consumption; tobacco and alcohol;

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Find related papers by JEL classification:
C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
I12 - Health, Education, and Welfare - - Health - - - Health Production

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  5. Davis, George C. & Kim, Sung-Yong, 2002. "Measuring instrument relevance in the single endogenous regressor-multiple instrument case: a simplifying procedure," Economics Letters, Elsevier, vol. 74(3), pages 321-325, February. [Downloadable!] (restricted)
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  9. Su, Shew-Jiuan B & Yen, Steven T, 2000. "A Censored System of Cigarette and Alcohol Consumption," Applied Economics, Taylor and Francis Journals, vol. 32(6), pages 729-37, May. [Downloadable!] (restricted)
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  12. Florkowski, Wojciech J. & McNamara, Kevin T., 1992. "Policy implications of alcohol and tobacco demand in Poland," Journal of Policy Modeling, Elsevier, vol. 14(1), pages 93-98, February. [Downloadable!] (restricted)
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  18. Christian Bantle & John P. Haisken-DeNew, 2002. "Smoke Signals: The Intergenerational Transmission of Smoking Behavior," Discussion Papers of DIW Berlin 277, DIW Berlin, German Institute for Economic Research. [Downloadable!]
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