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Prevalence and substitution effects in tobacco consumption: A discrete choice analysis of panel data

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  • Knut R. Wangen
  • Erik Biørn

    () (Statistics Norway)

Abstract

This paper analyzes tobacco demand within a discrete choice framework. Using binomial and multinomial logit models with random effects, and an unbalanced panel data set of Norwegian households over a twenty year period, we first consider the decisions a) whether to smoke or not, and b) given the choice is to smoke, whether to smoke hand rolled or manufactured cigarettes. Next, we consider a multinomial logit framework, in which the households choose between no tobacco, only manufactured cigarettes, only hand rolled cigarettes, and a combination of manufactured and hand rolled cigarettes. In this process, we utilize the potential offered by panel data to investigate unobserved heterogeneity, which is crucial for commodities where consumers have different tastes and where users tend to become addicted. Using Maximum Likelihood in combination with bootstrap estimation of standard errors, we find that income and prices influence the 'type of tobacco choice probabilities' at least as strongly as the 'smoking/non-smoking probabilities'. Cet.par., an increase in the price of manufactured cigarettes could lead consumers to switch to hand rolled cigarettes, rather than quit smoking. Socio-demographic variables seem to be at least as important in explaining the discrete aspects of tobacco consumption as income and prices. Finally, we find significant unobserved household specific effects in the smoking pattern.

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Bibliographic Info

Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 312.

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Date of creation: Nov 2001
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Handle: RePEc:ssb:dispap:312

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Related research

Keywords: Tobacco. Discrete choice. Panel data. Logit analysis. Heterogeneity. Bootstrapping.;

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References

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  1. Knut R. Wangen & Erik Biørn, . "Individual Heterogeneity and Price Responses in Tobacco Consumption: A Two-Commodity Analysis of Unbalanced Panel Data," Discussion Papers 294, Research Department of Statistics Norway.
  2. Nielsen, H.S. & Rosholm, M., 1997. "The Incidence of Unemployment: Identifying Quit and Layoffs," Papers 97-15, Centre for Labour Market and Social Research, Danmark-.
  3. McFadden, Daniel L., 1984. "Econometric analysis of qualitative response models," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 24, pages 1395-1457 Elsevier.
  4. Joel L. Horowitz, 1996. "Bootstrap Methods in Econometrics: Theory and Numerical Performance," Econometrics 9602009, EconWPA, revised 05 Mar 1996.
  5. Frank J. Chaloupka & Kenneth E. Warner, 1999. "The Economics of Smoking," NBER Working Papers 7047, National Bureau of Economic Research, Inc.
  6. Daniel Miles, . "The probability that a smoker does not purchase tobacco: A note," Studies on the Spanish Economy 15, FEDEA.
  7. Richard B. Howarth & Kjell Arne Brekke, 1998. "Status Preferences and Economic Growth," Discussion Papers 240, Research Department of Statistics Norway.
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Cited by:
  1. Knut Wangen & Erik Biørn, 2006. "How do consumers switch between close substitutes when price variation is small? The case of cigarette types," Spanish Economic Review, Springer, vol. 8(4), pages 239-253, December.

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