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Smoking and Health Investments: Impacts of Health Adaptation and Damage Reversibility

  • Carbone, Jared

    (Economics Department)

  • Kverndokk, Snorre


    (Ragnar Frisch Centre for Economic Research)

  • Røgeberg, Ole-Jørgen

    (Ragnar Frisch Centre for Economic Research)

In the present paper we examine how different sets of beliefs about the health effects of smoking would influence a rational smoker. By embedding the rational addiction theory in a Grossman model of health investment modified to take account of psychological adaptation effects, we present a model of a rational addict that allows us to explicitly specify beliefs about a direct and indirect effect on both death risk and utility. This allows us to study how a rational addict would smoke with different beliefs of cancer risks, and with or without the well-documented ability to adapt to health changes. Numerical simulation results illustrate a number of different incentives that influence the smoking paths and health investments under the various beliefs, and suggests that beliefs have different impacts at different ages, providing a richer set of dynamics than might initially be expected.

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Paper provided by Oslo University, Health Economics Research Programme in its series HERO On line Working Paper Series with number 2003:12.

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Length: 44 pages
Date of creation: 21 Jun 2009
Date of revision:
Handle: RePEc:hhs:oslohe:2003_012
Contact details of provider: Postal: HERO / Institute of Health Management and Health Economics P.O. Box 1089 Blindern, N-0317 Oslo, Norway
Phone: 2307 5309
Fax: 2307 5310
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  1. Goldbaum, David, 2000. "Life Cycle Consumption of a Harmful and Addictive Good," Economic Inquiry, Western Economic Association International, vol. 38(3), pages 458-69, July.
  2. Wu, Stephen, 2001. "Adapting to heart conditions: a test of the hedonic treadmill," Journal of Health Economics, Elsevier, vol. 20(4), pages 495-507, July.
  3. Chaloupka, Frank, 1991. "Rational Addictive Behavior and Cigarette Smoking," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 722-42, August.
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  5. 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.
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  7. Clarke, Harry R. & Reed, William J., 1994. "Consumption/pollution tradeoffs in an environment vulnerable to pollution-related catastrophic collapse," Journal of Economic Dynamics and Control, Elsevier, vol. 18(5), pages 991-1010, September.
  8. Suranovic, Steven M. & Goldfarb, Robert S. & Leonard, Thomas C., 1999. "An economic theory of cigarette addiction," Journal of Health Economics, Elsevier, vol. 18(1), pages 1-29, January.
  9. Gjerde, Jon & Grepperud, Sverre & Kverndokk, Snorre, 2009. "On adaptation, life-extension possibilities and the demand for health," HERO On line Working Paper Series 2001:7, Oslo University, Health Economics Research Programme.
  10. Cropper, M L, 1977. "Health, Investment in Health, and Occupational Choice," Journal of Political Economy, University of Chicago Press, vol. 85(6), pages 1273-94, December.
  11. Menzel, Paul & Dolan, Paul & Richardson, Jeff & Olsen, Jan Abel, 2002. "The role of adaptation to disability and disease in health state valuation: a preliminary normative analysis," Social Science & Medicine, Elsevier, vol. 55(12), pages 2149-2158, December.
  12. Sterling, T. & Weinkam, J., 1990. "The confounding of occupation and smoking and its consequences," Social Science & Medicine, Elsevier, vol. 30(4), pages 457-467, January.
  13. Smith, George Davey & Shipley, Martin J., 1991. "Confounding of occupation and smoking: Its magnitude and consequences," Social Science & Medicine, Elsevier, vol. 32(11), pages 1297-1300, January.
  14. Viscusi, W Kip, 1990. "Do Smokers Underestimate Risks?," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1253-69, December.
  15. Morton I. Kamien & Nancy L. Schwartz, 1971. "Optimal Maintenance and Sale Age for a Machine Subject to Failure," Management Science, INFORMS, vol. 17(8), pages B495-B504, April.
  16. Jones, Andrew M., 1999. "Adjustment costs, withdrawal effects, and cigarette addiction," Journal of Health Economics, Elsevier, vol. 18(1), pages 125-137, January.
  17. Sloan, Frank A. & Smith, V. Kerry & Taylor, Donald Jr., 2002. "Information, addiction, and 'bad choices': lessons from a century of cigarettes," Economics Letters, Elsevier, vol. 77(2), pages 147-155, October.
  18. Athanasios Orphanides & David Zervos, 1992. "Rational addiction with learning and regret," Finance and Economics Discussion Series 216, Board of Governors of the Federal Reserve System (U.S.).
  19. Grossman, Michael, 1972. "On the Concept of Health Capital and the Demand for Health," Journal of Political Economy, University of Chicago Press, vol. 80(2), pages 223-55, March-Apr.
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