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Interdependence of Tobacco and Alcohol Consumption: A Natural Experiment Approach

  • Koksal, Aycan
  • Wohlgenant, Michael

In this paper, we analyze the impact of smoking bans on restaurant and at-home alcohol consumption using rational addiction model. We use a pseudo-panel data approach which has many advantages compared to aggregate and panel data. While cigarette and restaurant alcohol consumptions fit well with the rational addiction model, at-home-alcohol consumption does not. This result might be due to possible inventory effects. Our results suggest that although cigarettes and alcohol reinforce each other in consumption, consumers substitute them when there are permanent changes in relative prices. In the semi-reduced system, the cross-price elasticity of restaurant(at-home) alcohol demand with respect to cigarette price is positive and significant. Based on model coefficients restaurant-alcohol consumption is a quasi-gateway for at-home-alcohol consumption. Smoking bans increase restaurant alcohol consumption. On the other hand, when blood alcohol concentration (BAC) limits decrease, both alcohol and cigarette consumptions decrease.

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File URL: http://purl.umn.edu/150459
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Paper provided by Agricultural and Applied Economics Association in its series 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. with number 150459.

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Date of creation: 2013
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Handle: RePEc:ags:aaea13:150459
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  1. Mikael Bask & Maria Melkersson, 2003. "Should one use smokeless tobacco in smoking cessation programs?," The European Journal of Health Economics, Springer, vol. 4(4), pages 263-270, December.
  2. Gabriel A. Picone & Frank Sloan & Justin G. Trogdon, 2004. "The effect of the tobacco settlement and smoking bans on alcohol consumption," Health Economics, John Wiley & Sons, Ltd., vol. 13(10), pages 1063-1080.
  3. McKenzie, D.J.David J., 2004. "Asymptotic theory for heterogeneous dynamic pseudo-panels," Journal of Econometrics, Elsevier, vol. 120(2), pages 235-262, June.
  4. David W. Cowling & Philip Bond, 2005. "Smoke-free laws and bar revenues in California - the last call," Health Economics, John Wiley & Sons, Ltd., vol. 14(12), pages 1273-1281.
  5. Mikael Bask & Maria Melkersson, 2004. "Rationally addicted to drinking and smoking?," Applied Economics, Taylor & Francis Journals, vol. 36(4), pages 373-381.
  6. Deaton, Angus, 1985. "Panel data from time series of cross-sections," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 109-126.
  7. Pierpaolo Pierani & Silvia Tiezzi, 2005. "Addiction and the Interaction between Alcohol and Tobacco Consumption," Department of Economics University of Siena 470, Department of Economics, University of Siena.
  8. 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 41, Chicago - Center for Study of Economy and State.
  9. Lewbel, Arthur, 1989. "Identification and Estimation of Equivalence Scales under Weak Separability," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 311-16, April.
  10. Dargay, Joyce, 2007. "The effect of prices and income on car travel in the UK," Transportation Research Part A: Policy and Practice, Elsevier, vol. 41(10), pages 949-960, December.
  11. Pierpaolo Pierani & Silvia Tiezzi, 2009. "Addiction and interaction between alcohol and tobacco consumption," Empirical Economics, Springer, vol. 37(1), pages 1-23, September.
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