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Rational addiction and time-consistency: An empirical test

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  • Piccoli, Luca
  • Tiezzi, Silvia

Abstract

This paper addresses one of the main empirical problems associated with rational addiction theory, namely, that its derived demand equation is not empirically distinguishable from those of models with forward-looking behavior but with time-inconsistent preferences. Using an encompassing general specification of the rational addiction model we derive a microfounded test of time-consistency. The test allows us to distinguish between time-consistent versus time-inconsistent naïve agents. The results obtained from a panel of Russian individuals conform to the theoretical predictions of the rational addiction model and the proposed test for time-consistency does not reject the hypothesis that Russian cigarette consumers are time-consistent.

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  • Piccoli, Luca & Tiezzi, Silvia, 2021. "Rational addiction and time-consistency: An empirical test," Journal of Health Economics, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:jhecon:v:80:y:2021:i:c:s0167629621001314
    DOI: 10.1016/j.jhealeco.2021.102546
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    Cited by:

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    More about this item

    Keywords

    Rational addiction; General versus standard specification; Time-consistency; Naïvete; GMM;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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