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Does the Behaviour of Myopic Addicts Support the Rational Addiction model?: A Simulation

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  • Björn Frank

Abstract

Becker and Murphy (1988) constructed, in a well-known paper, a model of rational addiction in which people solve a dynamic optimization problem, choose an optimal timepath of drug consumption and thereby maximize lifetime utility. The model leads to the hypothesis that future consumption is a significant explanatory variable for present consumption. This paper briefly surveys the empirical studies which provide support for this hypothesis. Most of the authors claim to have found support for the Becker-Murphy model. However, this paper will show that it is possible to obtain qualitatively the same results for the consumption patterns of myopic addicts. To this end, an economy is simulated in which everyone behaves according to Pollak's (1970) paradigmatic alternative to the model of rational addiction.

Suggested Citation

  • Björn Frank, 2002. "Does the Behaviour of Myopic Addicts Support the Rational Addiction model?: A Simulation," Discussion Papers of DIW Berlin 301, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp301
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    Keywords

    rational addiction; instrumental variables;

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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