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The Demand for Cocaine by Young Adults: A Rational Addiction Approach

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  • Michael Grossman
  • Frank J. Chaloupka
  • Charles C. Brown

Abstract

This paper applies the rational addiction model, which emphasizes the interdependency of past, current, and future consumption of an addictive good, to the demand for cocaine by young adults in the Monitoring the Future Panel. The price of cocaine is added to this survey from the System to Retrieve Information from Drug Evidence (STRIDE) maintained by the Drug Enforcement Administration of the U.S. Department of Justice. Results suggest that annual participation and frequency of use given participation are negatively related to the price of cocaine. In addition current participation is positively related to past and future participation, and current frequency of use given participation is positively related to past and future frequency of use. The long-run price elasticity of total consumption (participation multiplied by frequency given participation) of -1.18 is substantial. A permanent 10 percent reduction in price due, for example, to the legalization of cocaine would cause the number of cocaine users to grow by slightly more than 8 percent and would increase the frequency of use among users by a little more than 3 percent. Surely, both proponents and opponents of drug legalization should take account of this increase in consumption in debating their respective positions.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5713.

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Date of creation: Aug 1996
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Publication status: published as Journal of Health Economics, vol. 17, no. 4, pp. 427-474, August, 1998.
Handle: RePEc:nbr:nberwo:5713

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  1. Becker, Gary S & Grossman, Michael & Murphy, Kevin M, 1991. "Rational Addiction and the Effect of Price on Consumption," American Economic Review, American Economic Association, American Economic Association, vol. 81(2), pages 237-41, May.
  2. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, Elsevier, vol. 31(1), pages 93-118, February.
  3. Nisbet, Charles T & Vakil, Firouz, 1972. "Some Estimates of Price and Expenditure Elasticities of Demand for Marijuana Among U.C.L.A. Students," The Review of Economics and Statistics, MIT Press, vol. 54(4), pages 473-75, November.
  4. 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.
  5. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, Econometric Society, vol. 65(3), pages 557-586, May.
  6. Michael Grossman & Frank J. Chaloupka & Ismail Sirtalan, 1995. "An Empirical Analysis of Alcohol Addiction: Results from the Monitoring the Future Panels," NBER Working Papers 5200, National Bureau of Economic Research, Inc.
  7. Griliches, Zvi, 1979. "Sibling Models and Data in Economics: Beginnings of a Survey," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(5), pages S37-64, October.
  8. 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, Chicago - Center for Study of Economy and State 61, Chicago - Center for Study of Economy and State.
  9. 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, Chicago - Center for Study of Economy and State 41, Chicago - Center for Study of Economy and State.
  10. Douglas Coate & Michael Grossman, 1986. "Effects of Alcoholic Beverage Prices and Legal Drinking Ages on Youth Alcohol Use," NBER Working Papers 1852, National Bureau of Economic Research, Inc.
  11. Frank J. Chaloupka, 1990. "Rational Addictive Behavior and Cigarette Smoking," NBER Working Papers 3268, National Bureau of Economic Research, Inc.
  12. Wasserman, Jeffrey & Manning, Willard G. & Newhouse, Joseph P. & Winkler, John D., 1991. "The effects of excise taxes and regulations on cigarette smoking," Journal of Health Economics, Elsevier, Elsevier, vol. 10(1), pages 43-64, May.
  13. Leung, Siu Fai & Yu, Shihti, 1996. "On the choice between sample selection and two-part models," Journal of Econometrics, Elsevier, Elsevier, vol. 72(1-2), pages 197-229.
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  16. Cragg, John G, 1971. "Some Statistical Models for Limited Dependent Variables with Application to the Demand for Durable Goods," Econometrica, Econometric Society, Econometric Society, vol. 39(5), pages 829-44, September.
  17. Frank J. Chaloupka & Henry Saffer & Michael Grossman, 1991. "Alcohol Control Policies and Motor Vehicle Fatalities," NBER Working Papers 3831, National Bureau of Economic Research, Inc.
  18. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, Econometric Society, vol. 47(1), pages 153-61, January.
  19. Keeler, Theodore E. & Hu, Teh-Wei & Barnett, Paul G. & Manning, Williard G., 1993. "Taxation, regulation, and addiction: A demand function for cigarettes based on time-series evidence," Journal of Health Economics, Elsevier, Elsevier, vol. 12(1), pages 1-18, April.
  20. John DiNardo & Thomas Lemieux, 1992. "Alcohol, Marijuana, and American Youth: The Unintended Effects of Government Regulation," NBER Working Papers 4212, National Bureau of Economic Research, Inc.
  21. Caulkins Jonathan P., 1995. "Domestic Geographic Variation in Illicit Drug Prices," Journal of Urban Economics, Elsevier, vol. 37(1), pages 38-56, January.
  22. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
  23. Ehrlich, Isaac, 1973. "Participation in Illegitimate Activities: A Theoretical and Empirical Investigation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 81(3), pages 521-65, May-June.
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