Rationally Addicted to Drinking and Smoking?
AbstractWhen modeling demand for addictive consumption goods, the most widely used framework is the rational addiction model proposed by Becker and Murphy (1988). In the present paper, we extend the rational addiction model to include two addictive consumption goods, alcohol and cigarettes. We estimate the aggregate demand for alcohol and cigarettes in Sweden, using aggregate annual time series on sales volumes for the period 1955-1999. OLS estimates are compared to GMM estimates allowing for possible endogeneity of lagged and lead consumption. We first estimate demand for alcohol and cigarettes as separate equations. It is found that alcohol demand is quite well described by the rational addiction model while the same is not true for cigarettes. The own-price elasticities are negative, and alcohol demand is more elastic than cigarette demand. The cross-price elasticities are negative, i.e., alcohol and cigarettes are complements. Since consumption of alcohol and cigarettes are probably simultaneous decisions, we estimate the demand for these goods as a system of equations. Alcohol demand is still positively affected by lagged and lead consumption while cigarette demand is not. The obtained elasticities are now generally smaller compared to when estimating the equations separately.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 567.
Length: 19 pages
Date of creation: 01 Nov 2001
Date of revision:
Contact details of provider:
Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
Phone: 090 - 786 61 42
Fax: 090 - 77 23 02
Web page: http://www.econ.umu.se/
More information through EDIRC
Alcohol Demand; Cigarette Demand; Habitual Consumption; Rational Addiction;
Other versions of this item:
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-11-05 (All new papers)
- NEP-HEA-2001-11-05 (Health Economics)
- NEP-MIC-2001-11-05 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Olekalns, Nilss & Bardsley, Peter, 1996.
"Rational Addiction to Caffeine: An Analysis of Coffee Consumption,"
Journal of Political Economy,
University of Chicago Press, vol. 104(5), pages 1100-1104, October.
- Nilss Olekalns & Peter Bardsley, 1994. "Rational Addiction to Caffeine: an Analysis of Coffee Consumption," Working Papers 1994.21, School of Economics, La Trobe University.
- Becker, Gary S & Grossman, Michael & Murphy, Kevin M, 1994.
"An Empirical Analysis of Cigarette Addiction,"
American Economic Review,
American Economic Association, vol. 84(3), pages 396-418, June.
- Gary S. Becker & Michael Grossman & Kevin M. Murphy, 1990. "An Empirical Analysis of Cigarette Addiction," University of Chicago - George G. Stigler Center for Study of Economy and State 61, Chicago - Center for Study of Economy and State.
- Gary S. Becker & Michael Grossman & Kevin M. Murphy, 1994. "An Empirical Analysis of Cigarette Addiction," NBER Working Papers 3322, National Bureau of Economic Research, Inc.
- Frank J. Chaloupka & Adit Laixuthai, 1997.
"Do Youths Substitute Alcohol and Marijuana? Some Econometric Evidence,"
Eastern Economic Journal,
Eastern Economic Association, vol. 23(3), pages 253-276, Summer.
- Frank J. Chaloupka & Adit Laixuthai, 1994. "Do Youths Substitute Alcohol and Marijuana? Some Econometric Evidence," NBER Working Papers 4662, National Bureau of Economic Research, Inc.
- Frank J. Chaloupka & Kenneth E. Warner, 1999.
"The Economics of Smoking,"
NBER Working Papers
7047, National Bureau of Economic Research, Inc.
- Sandra L. Decker & Amy Ellen Schwartz, 2000. "Cigarettes and Alcohol: Substitutes or Complements?," NBER Working Papers 7535, National Bureau of Economic Research, Inc.
- Sergi Jiménez-Mart�n & José M. Labeaga & Angel López, 1998. "Participation, heterogeneity and dynamics in tobacco consumption: evidence from cohort data," Health Economics, John Wiley & Sons, Ltd., vol. 7(5), pages 401-414.
- Athanasios Orphanides & David Zervos, 1992.
"Rational addiction with learning and regret,"
Finance and Economics Discussion Series
216, Board of Governors of the Federal Reserve System (U.S.).
- Ryder, Harl E, Jr & Heal, Geoffrey M, 1973. "Optimum Growth with Intertemporally Dependent Preferences," Review of Economic Studies, Wiley Blackwell, vol. 40(1), pages 1-33, January.
- Suranovic, Steven M. & Goldfarb, Robert S. & Leonard, Thomas C., 1999. "An economic theory of cigarette addiction," Journal of Health Economics, Elsevier, vol. 18(1), pages 1-29, January.
- Gary S. Becker & Kevin M. Murphy, 1986.
"A Theory of Rational Addiction,"
University of Chicago - George G. Stigler Center for Study of Economy and State
41, Chicago - Center for Study of Economy and State.
- Shew-Jiuan Su & Steven Yen, 2000. "A censored system of cigarette and alcohol consumption," Applied Economics, Taylor and Francis Journals, vol. 32(6), pages 729-737.
- Pierpaolo Pierani & Silvia Tiezzi, 2009. "Addiction and interaction between alcohol and tobacco consumption," Empirical Economics, Springer, vol. 37(1), pages 1-23, September.
- Koksal, Aycan & Wohlgenant, Michael, 2013. "Interdependence of Tobacco and Alcohol Consumption: A Natural Experiment Approach," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150459, Agricultural and Applied Economics Association.
- Pinka Chatterji & Jeffrey DeSimone, 2006. "High School Alcohol Use and Young Adult Labor Market Outcomes," NBER Working Papers 12529, National Bureau of Economic Research, Inc.
- Göhlmann, Silja & Requate, Till & Schmidt, Christoph M & Tauchmann, Harald, 2008.
"Tobacco and Alcohol: Complements or Substitutes? A Structural Model Approach,"
CEPR Discussion Papers
6780, C.E.P.R. Discussion Papers.
- Harald Tauchmann & Silja Göhlmann & Till Requate & Christoph M. Schmidt, 2007. "Tobacco and Alcohol: Complements or Substitutes? – A Structural Model Approach," Ruhr Economic Papers 0034, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
- Tauchmann, Harald & Göhlmann, Silja & Requate, Till & Schmidt, Christoph M., 2008. "Tobacco and Alcohol: Complements or Substitutes? A Structural Model Approach," IZA Discussion Papers 3412, Institute for the Study of Labor (IZA).
- Requate, Till & Göhlmann, Silja & Tauchmann, Harald & Schmidt, Christoph M., 2006.
"Tobacco and alcohol: complements or substitutes? : a statistical Guinea Pig approach,"
Economics Working Papers
2006,18, Christian-Albrechts-University of Kiel, Department of Economics.
- Harald Tauchmann & Silja Göhlmann & Till Requate & Chistoph M. Schmidt, 2006. "Tobacco and Alcohol: Complements or Substitutes? - A Statistical Guinea Pig Approach," RWI Discussion Papers 0052, Rheinisch-Westfälisches Institut für Wirtschaftsforschung.
- Ana Gil & José Molina, 2009. "Alcohol demand among young people in Spain: an addictive QUAIDS," Empirical Economics, Springer, vol. 36(3), pages 515-530, June.
- Koksal, Aycan & Wohlgenant, Michael, 2013. "Pseudo Panel Data Estimation Technique and Rational Addiction Model: An Analysis of Tobacco, Alcohol and Coffee Demands," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150457, Agricultural and Applied Economics Association.
- Sara Markowitz & John Tauras, 2009. "Substance use among adolescent students with consideration of budget constraints," Review of Economics of the Household, Springer, vol. 7(4), pages 423-446, December.
- Sara Markowitz & John Tauras, 2006. "Even For Teenagers, Money Does Not Grow on Trees: Teenage Substance Use and Budget Constraints," NBER Working Papers 12300, National Bureau of Economic Research, Inc.
- D. Dragone & F. Manaresi & L. Savorelli, 2013.
"Obesity and smoking: can we catch two birds with one tax?,"
wp873, Dipartimento Scienze Economiche, Universita' di Bologna.
- Davide Dragone & Francesco Manaresi & Luca Savorelli, 2013. "Obesity and smoking: can we catch two birds with one tax?," Discussion Paper Series, Department of Economics 201306, Department of Economics, University of St. Andrews.
- David Aristei & Luca Pieroni, 2008.
"A double-hurdle approach to modelling tobacco consumption in Italy,"
Taylor and Francis Journals, vol. 40(19), pages 2463-2476.
- David Aristei & Luca Pieroni, 2007. "A Double-Hurdle Approach to Modelling Tobacco Consumption in Italy," Quaderni del Dipartimento di Economia, Finanza e Statistica 29/2007, Università di Perugia, Dipartimento Economia, Finanza e Statistica.
- Fang, Hai & Ali, Mir M. & Rizzo, John A., 2009. "Does smoking affect body weight and obesity in China?," Economics & Human Biology, Elsevier, vol. 7(3), pages 334-350, December.
- Jeffrey S. DeSimone, 2010. "Fraternity Membership & Frequent Drinking," NBER Working Papers 16291, National Bureau of Economic Research, Inc.
- Frank Sloan & Alyssa Platt, 2011. "Information, risk perceptions, and smoking choices of youth," Journal of Risk and Uncertainty, Springer, vol. 42(2), pages 161-193, April.
- Michael T. Owyang & E. Katarina Vermann, 2012. "Where there’s a smoking ban, there’s still fire," Review, Federal Reserve Bank of St. Louis, issue July, pages 265-286.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kjell-Göran Holmberg).
If references are entirely missing, you can add them using this form.