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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 suggests that although cigarettes and alcohol reinforce each other in consumption, consumers substitute them when there are permanent changes in 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. We find that smoking bans increase restaurant alcohol consumption, but decrease at-home alcohol consumption. After a smoking ban is imposed, nonsmokers are likely to stay longer at restaurants and consume more alcohol. On the other hand, when smokers are not allowed to smoke at the restaurants, they are likely to compensate it by increasing their restaurant alcohol consumption. As smoking bans builds on social drinking habits, we observe a decrease at at-home alcohol consumption. On the other hand, when blood alcohol concentration (BAC) limits decrease, both alcohol and cigarette consumptions decrease.

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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
Date of revision:
Handle: RePEc:ags:aaea13:150459
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  1. Pierpaolo Pierani & Silvia Tiezzi, 2009. "Addiction and interaction between alcohol and tobacco consumption," Empirical Economics, Springer, vol. 37(1), pages 1-23, September.
  2. Bask, Mikael & Melkersson, Maria, 2001. "Rationally Addicted to Drinking and Smoking?," Umeå Economic Studies 567, Umeå University, Department of Economics.
  3. 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.
  4. 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.
  5. McKenzie, D.J.David J., 2004. "Asymptotic theory for heterogeneous dynamic pseudo-panels," Journal of Econometrics, Elsevier, vol. 120(2), pages 235-262, June.
  6. 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.
  7. Deaton, Angus, 1985. "Panel data from time series of cross-sections," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 109-126.
  8. 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.
  9. Becker, Gary S & Murphy, Kevin M, 1988. "A Theory of Rational Addiction," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 675-700, August.
  10. 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.
  11. 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.
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