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Individual Behaviors and Substance Use: The Role of Price

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  • Michael Grossman

Abstract

I discuss economic approaches to the demand for harmfully addictive substances and estimate time-series demand functions for the period from 1975 through 2003. My estimates suggest that changes in price can explain a good deal of the observed changes in cigarette smoking, binge alcohol drinking, and marijuana use by high school seniors. For example, the 70 percent increase in the real price of cigarettes since 1997 due to the Medicaid Master Settlement Agreement explains almost all of the 12 percentage point reduction in the cigarette smoking participation rate since that year. The 7 percent increase in the real price of beer between 1990 and 1992 due to the Federal excise tax hike on that beverage in 1991 accounts for almost 90 percent of the 4 percentage point decline in binge drinking in the period at issue. The wide swings in the real price of marijuana explain 70 percent of the reduction in particpation from 1975 to 1992, 60 percent of the subsequent growth to 1997, and almost 60 percent of the decline since that year. I conclude with implications for tax policy and for the lively and contentious debate concerning the legalization of marijuana, cocaine, and heroin.

Suggested Citation

  • Michael Grossman, 2004. "Individual Behaviors and Substance Use: The Role of Price," NBER Working Papers 10948, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:10948
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    1. Clifford F. Thies, 2012. "The Relationship Between Enforcement and the Price of Marijuana," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 28(Fall 2012), pages 79-90.
    2. Lim, King Yoong & Morris, Diego, 2020. "The economics of the illicit drugs-for-guns trade and growth," Economic Modelling, Elsevier, vol. 91(C), pages 218-232.
    3. Norman V. Loayza & Naotaka Sugawara, 2012. "Would liberalization lead to epidemic cocaine consumption?," Applied Economics Letters, Taylor & Francis Journals, vol. 19(14), pages 1405-1409, September.
    4. Vipul Bhatt, 2011. "Adolescent Alcohol Use and Intergenerational Transfers: Evidence from Micro Data," Journal of Family and Economic Issues, Springer, vol. 32(2), pages 296-307, June.
    5. Cheng, Stephanie F. & De Franco, Gus & Lin, Pengkai, 2023. "Marijuana liberalization and public finance: A capital market perspective on the passage of medical use laws," Journal of Accounting and Economics, Elsevier, vol. 75(1).
    6. Carlos Dobkin & Nancy Nicosia, 2009. "The War on Drugs: Methamphetamine, Public Health, and Crime," American Economic Review, American Economic Association, vol. 99(1), pages 324-349, March.
    7. Anne Bretteville-Jensen, 2006. "Drug Demand – Initiation, Continuation and Quitting," De Economist, Springer, vol. 154(4), pages 491-516, December.
    8. Pudney, Stephen & Bryan, Mark & DelBono, Emilia, 2013. "Licensing and regulation of the cannabis market in England and Wales: Towards a cost-benefit analysis," MPRA Paper 50365, University Library of Munich, Germany.
    9. Rinaldi, Gustavo, 2007. "The use of economic tools to develop a consensus on alcohol policies within and between jurisdictions," MPRA Paper 21941, University Library of Munich, Germany, revised 18 Apr 2007.
    10. Jonathan Caulkins & Paul Dietze & Alison Ritter, 2007. "Dynamic compartmental model of trends in Australian drug use," Health Care Management Science, Springer, vol. 10(2), pages 151-162, June.
    11. Christopher Carpenter & Philip J. Cook, 2007. "Cigarette Taxes and Youth Smoking: New Evidence from National, State, & Local Youth Risk Behavior Surveys," NBER Working Papers 13046, National Bureau of Economic Research, Inc.
    12. Thorhildur Ólafsdóttir & Birgir Hrafnkelsson & Tinna Ásgeirsdóttir, 2015. "The Icelandic economic collapse, smoking, and the role of labor-market changes," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 16(4), pages 391-405, May.
    13. DeCicca, Philip & Kenkel, Don & Mathios, Alan, 2008. "Cigarette taxes and the transition from youth to adult smoking: Smoking initiation, cessation, and participation," Journal of Health Economics, Elsevier, vol. 27(4), pages 904-917, July.
    14. Gwendolyn Alexander Tedeschi, 2007. "Drug Markets: A Classroom Experiment," The American Economist, Sage Publications, vol. 51(1), pages 75-84, March.
    15. Craig Lemboe & Philip Black, 2012. "Cigarettes taxes and smuggling in South Africa: Causes and Consequences," Working Papers 09/2012, Stellenbosch University, Department of Economics.
    16. Slim, Sadri, 2009. "Du refus de vente au don: une explication de la formation du prix par l´affect [From rejection of exchange to gift: regard as an explanation of prices]," MPRA Paper 15317, University Library of Munich, Germany, revised 24 Apr 2009.
    17. Nelson, Jon P., 2006. "Cigarette advertising regulation: A meta-analysis," International Review of Law and Economics, Elsevier, vol. 26(2), pages 195-226, June.
    18. Cláudia Costa Storti & Paul De Grauwe, 2007. "Globalization and the Price Decline of Illicit Drugs," CESifo Working Paper Series 1990, CESifo.
    19. A. Ramirez-Hassan & C. Gomez & S. Velasquez & K. Tangarife, 2023. "Marijuana on Main Streets? The Story Continues in Colombia: An Endogenous Three-part Model," Papers 2306.10031, arXiv.org.

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    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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