Does the Behaviour of Myopic Addicts Support the Rational Addiction model?: A Simulation
AbstractBecker and Murphy (1988) constructed, in a well-known paper, a model of rational addiction in which people solve a dynamic optimization problem, choose an optimal timepath of drug consumption and thereby maximize lifetime utility. The model leads to the hypothesis that future consumption is a significant explanatory variable for present consumption. This paper briefly surveys the empirical studies which provide support for this hypothesis. Most of the authors claim to have found support for the Becker-Murphy model. However, this paper will show that it is possible to obtain qualitatively the same results for the consumption patterns of myopic addicts. To this end, an economy is simulated in which everyone behaves according to Pollak's (1970) paradigmatic alternative to the model of rational addiction.
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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 301.
Length: 14 p.
Date of creation: 2002
Date of revision:
rational addiction; instrumental variables;
Find related papers by JEL classification:
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-11-04 (All new papers)
- NEP-CBE-2002-11-04 (Cognitive & Behavioural Economics)
- NEP-CMP-2002-11-04 (Computational Economics)
- NEP-HEA-2002-11-04 (Health Economics)
- NEP-MIC-2002-11-20 (Microeconomics)
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