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Mental Illness and the Demand for Alcohol, Cocaine and Cigarettes

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  • Henry Saffer
  • Dhaval Dave

Abstract

The purpose of this paper is to estimate the effect that mental illness has on the demand for addictive goods. Mental illness could affect the level of consumption of addictive goods and could affect the price elasticities of addictive goods. Demand theory suggests that mental illness would affect consumption if mental illness affected marginal utility. In addition, mental illness would affect the price elasticity if mental illness affected the rate at which marginal utility diminishes. The empirical models allow for endogeneity between mental illness and addictive consumption since prior research suggests such a relationship. The results show that individuals with a history of mental illness are 25 percent more likely to consume alcohol, 69 percent more likely to consume cocaine and 94 percent more likely to consume cigarettes. Individuals with a history of mental illness are responsive to price although the price elasticites differ somewhat from whose without mental illness. These results provide an added justification for higher taxes and other supply reduction activities since they show that these policies are effective with this high participation group. The results also suggest that an additional method of reducing the consumption of addictive goods is to subsidize the treatment of mental illness.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8699.

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Date of creation: Jan 2002
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Publication status: published as Henry Saffer & Dhaval Dave, 2005. "Mental Illness and the Demand for Alcohol, Cocaine, and Cigarettes," Economic Inquiry, Oxford University Press, vol. 43(2), pages 229-246, April.
Handle: RePEc:nbr:nberwo:8699

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  1. Gary S. Becker & Michael Grossman & Kevin M. Murphy, 1990. "An Empirical Analysis of Cigarette Addiction," NBER Working Papers 3322, National Bureau of Economic Research, Inc.
  2. Michael Grossman & Frank J. Chaloupka & Charles C. Brown, 1996. "The Demand for Cocaine by Young Adults: A Rational Addiction Approach," NBER Working Papers 5713, National Bureau of Economic Research, Inc.
  3. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195060119, October.
  4. James J. Heckman & Thomas E. MaCurdy, 1985. "A Simultaneous Equations Linear Probability Model," Canadian Journal of Economics, Canadian Economics Association, vol. 18(1), pages 28-37, February.
  5. Michael Grossman, 1972. "The Demand for Health: A Theoretical and Empirical Investigation," NBER Books, National Bureau of Economic Research, Inc, number gros72-1, Ekim.
  6. Joshua Angrist, 1999. "Estimation of Limited-Dependent Variable Models with Dummy Endogenous Regressors: Simple Strategies for Empirical Practice," Working papers 99-31, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Manning, Willard G. & Blumberg, Linda & Moulton, Lawrence H., 1995. "The demand for alcohol: The differential response to price," Journal of Health Economics, Elsevier, vol. 14(2), pages 123-148, June.
  8. Kenkel, Donald S, 1996. "New Estimates of the Optimal Tax on Alcohol," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 34(2), pages 296-319, April.
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Cited by:
  1. Lacruz, Ana Isabel Gil & Lacruz, Marta Gil, 2010. "Does alcohol consumption reinforce mental problems in adolescence?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(2), pages 223-232, April.
  2. Henry Saffer, 2014. "Self-regulation and Health," NBER Working Papers 20483, National Bureau of Economic Research, Inc.
  3. Amnon Levy & João Faria, 2008. "Persistent high ambition and substance abuse: a rationalization of a vicious circle," Journal of Economics, Springer, vol. 94(3), pages 261-274, September.
  4. Dhaval Dave & Henry Saffer, 2007. "Risk Tolerance and Alcohol Demand Among Adults and Older Adults," NBER Working Papers 13482, National Bureau of Economic Research, Inc.
  5. Chatterji, Pinka & Dave, Daval & Kaestner, Robert & Markowitz, Sara, 2004. "Alcohol abuse and suicide attempts among youth," Economics & Human Biology, Elsevier, Elsevier, vol. 2(2), pages 159-180, June.
  6. Naci Mocan & Kaj Gittings, 2010. "The Impact of Incentives on Human Behavior: Can We Make it Disappear? The Case of the Death Penalty," NBER Chapters, in: The Economics of Crime: Lessons for and from Latin America, pages 379-418 National Bureau of Economic Research, Inc.
  7. Inas Rashad Kelly & Dhaval M. Dave & Jody L. Sindelar & William T. Gallo, 2011. "The Impact of Early Occupational Choice On Health Behaviors," NBER Working Papers 16803, National Bureau of Economic Research, Inc.
  8. Ana I. Balsa & Michael T. French, 2011. "The Impact of Parental Drinking on Children’s Use of Health Care," Documentos de Trabajo/Working Papers 1101, Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo..
  9. Dave, Dhaval & Saffer, Henry, 2008. "Alcohol demand and risk preference," Journal of Economic Psychology, Elsevier, vol. 29(6), pages 810-831, December.

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