IDEAS home Printed from https://ideas.repec.org/p/iae/iaewps/wp2017n32.html
   My bibliography  Save this paper

The Welfare Implications of Addictive Substances: A Longitudinal Study of Life Satisfaction of Drug Users

Author

Listed:
  • Julie Moschion

    () (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne)

  • Nattavudh Powdthavee

    (Warwick Business School; and Centre for Economic Performance, London School of Economics)

Abstract

This paper provides an empirical test of the rational addiction model, used in economics to model individuals’ consumption of addictive substances, versus the utility misprediction model, used in psychology to explain the discrepancy between people’s decision and their subsequent experiences. By exploiting a unique data set of disadvantaged Australians, we provide longitudinal evidence that a drop in life satisfaction tends to precede the use of illegal/street drugs. We also find that the abuse of alcohol, the daily use of cannabis and the weekly use of illegal/street drugs in the past 6 months relate to lower current levels of life satisfaction. This provides empirical support for the utility misprediction model. Further, we find that the decrease in life satisfaction following the consumption of illegal/street drugs persists 6 months to a year after use. In contrast, the consumption of cigarettes is unrelated to life satisfaction in the close past or the near future. Our results, though only illustrative, suggest that measures of individual’s subjective wellbeing should be examined together with data on revealed preferences when testing models of rational decision-making.

Suggested Citation

  • Julie Moschion & Nattavudh Powdthavee, 2017. "The Welfare Implications of Addictive Substances: A Longitudinal Study of Life Satisfaction of Drug Users," Melbourne Institute Working Paper Series wp2017n32, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  • Handle: RePEc:iae:iaewps:wp2017n32
    as

    Download full text from publisher

    File URL: http://melbourneinstitute.unimelb.edu.au/__data/assets/pdf_file/0019/2600803/wp2017no32.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. George Loewenstein & Ted O'Donoghue & Matthew Rabin, 2003. "Projection Bias in Predicting Future Utility," The Quarterly Journal of Economics, Oxford University Press, vol. 118(4), pages 1209-1248.
    2. Daniel Kahneman & Peter P. Wakker & Rakesh Sarin, 1997. "Back to Bentham? Explorations of Experienced Utility," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 375-406.
    3. Olekalns, Nilss & Bardsley, Peter, 1996. "Rational Addiction to Caffeine: An Analysis of Coffee Consumption," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1100-1104, October.
    4. Jonathan Gardner & Andrew J. Oswald, 2006. "Do divorcing couples become happier by breaking up?," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 169(2), pages 319-336.
    5. Oswald, Andrew J. & Powdthavee, Nattavudh, 2008. "Does happiness adapt? A longitudinal study of disability with implications for economists and judges," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1061-1077, June.
    6. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    7. Stutzer, Alois & Frey, Bruno S., 2006. "Does marriage make people happy, or do happy people get married?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 35(2), pages 326-347, April.
    8. Terence C. Cheng & Nattavudh Powdthavee & Andrew J. Oswald, 2017. "Longitudinal Evidence for a Midlife Nadir in Human Well‐being: Results from Four Data Sets," Economic Journal, Royal Economic Society, vol. 127(599), pages 126-142, February.
    9. Abel Brodeur, 2012. "Smoking, Income and Subjective Well-Being: Evidence from Smoking Bans," PSE Working Papers halshs-00664269, HAL.
    10. Nattavudh Powdthavee, 2012. "Jobless, Friendless and Broke: What Happens to Different Areas of Life Before and After Unemployment?," Economica, London School of Economics and Political Science, vol. 79(315), pages 557-575, July.
    11. Grossman, Michael & Chaloupka, Frank J., 1998. "The demand for cocaine by young adults: a rational addiction approach," Journal of Health Economics, Elsevier, vol. 17(4), pages 427-474, August.
    12. Kan, Kamhon, 2007. "Cigarette smoking and self-control," Journal of Health Economics, Elsevier, vol. 26(1), pages 61-81, January.
    13. Chaloupka, Frank, 1991. "Rational Addictive Behavior and Cigarette Smoking," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 722-742, August.
    14. Daniel J. Benjamin & Ori Heffetz & Miles S. Kimball & Alex Rees-Jones, 2012. "What Do You Think Would Make You Happier? What Do You Think You Would Choose?," American Economic Review, American Economic Association, vol. 102(5), pages 2083-2110, August.
    15. Andrew E. Clark & Ed Diener & Yannis Georgellis & Richard E. Lucas, 2008. "Lags And Leads in Life Satisfaction: a Test of the Baseline Hypothesis," Economic Journal, Royal Economic Society, vol. 118(529), pages 222-243, June.
    16. Daniel Kahneman & Alan B. Krueger, 2006. "Developments in the Measurement of Subjective Well-Being," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 3-24, Winter.
    17. Odermatt, Reto & Stutzer, Alois, 2015. "Smoking bans, cigarette prices and life satisfaction," Journal of Health Economics, Elsevier, vol. 44(C), pages 176-194.
    18. Andreas Knabe & Steffen Rätzel & Ronnie Schöb & Joachim Weimann, 2010. "Dissatisfied with Life but Having a Good Day: Time-use and Well-being of the Unemployed," Economic Journal, Royal Economic Society, vol. 120(547), pages 867-889, September.
    19. 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.
    20. Andrew Leicester & Peter Levell, 2016. "Anti‐Smoking Policies and Smoker Well‐Being: Evidence from Britain," Fiscal Studies, Institute for Fiscal Studies, vol. 37, pages 224-257, June.
    21. Anke C. Zimmermann & Richard A. Easterlin, 2006. "Happily Ever After? Cohabitation, Marriage, Divorce, and Happiness in Germany," Population and Development Review, The Population Council, Inc., vol. 32(3), pages 511-528.
    22. Mark Wooden & Andrew Bevitt & Abraham Chigavazira & Nancy Greer & Guy Johnson & Eoin Killackey & Julie Moschion & Rosanna Scutella & Yi-Ping Tseng & Nicole Watson, 2012. "Introducing ‘Journeys Home’," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 45(3), pages 368-378, September.
    23. Rafael Di Tella & Robert MacCulloch, 2006. "Some Uses of Happiness Data in Economics," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 25-46, Winter.
    24. Paul Frijters & David W. Johnston & Michael A. Shields, 2011. "Life Satisfaction Dynamics with Quarterly Life Event Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(1), pages 190-211, March.
    25. Becker, Gary S & Grossman, Michael & Murphy, Kevin M, 1991. "Rational Addiction and the Effect of Price on Consumption," American Economic Review, American Economic Association, vol. 81(2), pages 237-241, May.
    26. Jonathan Gruber & Botond Köszegi, 2001. "Is Addiction "Rational"? Theory and Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1261-1303.
    27. Badi H. Baltagi & James M. Griffin, 2002. "Rational addiction to alcohol: panel data analysis of liquor consumption," Health Economics, John Wiley & Sons, Ltd., vol. 11(6), pages 485-491.
    28. Powdthavee, Nattavudh, 2009. "What happens to people before and after disability? Focusing effects, lead effects, and adaptation in different areas of life," Social Science & Medicine, Elsevier, vol. 69(12), pages 1834-1844, December.
    29. Daniel Kahneman & Richard H. Thaler, 2006. "Anomalies: Utility Maximization and Experienced Utility," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 221-234, Winter.
    30. Michael Shields & Stephen Wheatley Price & Mark Wooden, 2009. "Life satisfaction and the economic and social characteristics of neighbourhoods," Journal of Population Economics, Springer;European Society for Population Economics, vol. 22(2), pages 421-443, April.
    31. Powdthavee, Nattavudh, 2009. "I can't smile without you: Spousal correlation in life satisfaction," Journal of Economic Psychology, Elsevier, vol. 30(4), pages 675-689, August.
    32. Miaoqing Yang & Eugenio Zucchelli, 2015. "The Impact of Public Smoking Bans on Well-Being Externalities: Evidence From A Natural Experiment," Working Papers 150009, Canadian Centre for Health Economics.
    33. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 443-478.
    34. Andrew Leicester & Peter Levell, 2013. "Anti-smoking policies and smoker well-being: evidence from Britain," IFS Working Papers W13/13, Institute for Fiscal Studies.
    35. A. Colin Cameron & Douglas L. Miller, 2015. "A Practitioner’s Guide to Cluster-Robust Inference," Journal of Human Resources, University of Wisconsin Press, vol. 50(2), pages 317-372.
    36. Labeaga, Jose M., 1999. "A double-hurdle rational addiction model with heterogeneity: Estimating the demand for tobacco," Journal of Econometrics, Elsevier, vol. 93(1), pages 49-72, November.
    37. Paul Dolan & Richard Layard & Robert Metcalfe, 2011. "Measuring Subjective Wellbeing for Public Policy: Recommendations on Measures," CEP Special Papers 23, Centre for Economic Performance, LSE.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The Welfare Implications of Addictive Substances: A Longitudinal Study of Life Satisfaction of Drug Users
      by maximorossi in NEP-LTV blog on 2018-05-17 20:23:15

    More about this item

    Keywords

    Life satisfaction; rational addiction; drugs; homeless; Australia; happiness;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iae:iaewps:wp2017n32. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sheri Carnegie). General contact details of provider: http://edirc.repec.org/data/mimelau.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.