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

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Author Info

  • Tauchmann, Harald

    ()
    (RWI)

  • Göhlmann, Silja

    ()
    (RWI)

  • Requate, Till

    ()
    (University of Kiel)

  • Schmidt, Christoph M.

    ()
    (RWI)

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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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3412.

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Length: 38 pages
Date of creation: Mar 2008
Date of revision:
Publication status: published online as 'Tobacco and alcohol: complements or substitutes? A structural model approach to insufficient price variation in individual-level data' in: Empirical Economics, 2012, [Online First]
Handle: RePEc:iza:izadps:dp3412

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

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References

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Citations

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Cited by:
  1. Silja Göhlmann & Christoph M. Schmidt & Harald Tauchmann, 2010. "Smoking initiation in Germany: the role of intergenerational transmission," Health Economics, John Wiley & Sons, Ltd., vol. 19(2), pages 227-242.
  2. Michael Kvasnicka & Harald Tauchmann, 2010. "Krankenhaus Rating Report 2010 – Licht und Schatten – Executive Summary," RWI Materialien, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, pages 21, 04.
  3. George Wehby & Allen Wilcox & Rolv Lie, 2013. "The impact of cigarette quitting during pregnancy on other prenatal health behaviors," Review of Economics of the Household, Springer, vol. 11(2), pages 211-233, June.

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