IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/10948.html
   My bibliography  Save this paper

Individual Behaviors and Substance Use: The Role of Price

Author

Listed:
  • 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
    Note: HE CH
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w10948.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Rosalie Liccardo Pacula & Michael Grossman & Frank J. Chaloupka & Patrick M. O'Malley & Lloyd D. Johnston & Matthew C. Farrelly, 2001. "Marijuana and Youth," NBER Chapters, in: Risky Behavior among Youths: An Economic Analysis, pages 271-326, National Bureau of Economic Research, Inc.
      • R. L. Pacula & M. Grossman & F. J. Chaloupka & P. M. O'Malley & Lloyd D. Johnston & Matthew C. Farrelly, 2000. "Marijuana and Youth," NBER Working Papers 7703, National Bureau of Economic Research, Inc.
    2. Philip J. Cook & George Tauchen, 1982. "The Effect of Liquor Taxes on Heavy Drinking," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 379-390, Autumn.
    3. Frank J. Chaloupka & Michael Grossman & Warren K. Bickel & Henry Saffer, 1999. "The Economic Analysis of Substance Use and Abuse: An Integration of Econometric and Behavioral Economic Research," NBER Books, National Bureau of Economic Research, Inc, number chal99-1, January.
    4. Frank A. Sloan & Jan Ostermann & Christopher Conover & Donald H. Taylor, Jr. & Gabriel Picone, 2006. "The Price of Smoking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262693453, December.
    5. William N. Evans & Matthew C. Farrelly, 1998. "The Compensating Behavior of Smokers: Taxes, Tar, and Nicotine," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 578-595, Autumn.
    6. Grossman, Michael & Chaloupka, Frank J & Sirtalan, Ismail, 1998. "An Empirical Analysis of Alcohol Addiction: Results from the Monitoring the Future Panels," Economic Inquiry, Western Economic Association International, vol. 36(1), pages 39-48, January.
    7. Sara Markowitz, 2000. "The Price of Alcohol, Wife Abuse, and Husband Abuse," Southern Economic Journal, John Wiley & Sons, vol. 67(2), pages 279-303, July.
    8. Gary S. Becker, 1992. "Habits, Addictions, and Traditions," Kyklos, Wiley Blackwell, vol. 45(3), pages 327-345, August.
    9. Gary S. Becker & Casey B. Mulligan, 1997. "The Endogenous Determination of Time Preference," The Quarterly Journal of Economics, Oxford University Press, vol. 112(3), pages 729-758.
    10. Ruhm, Christopher J., 1996. "Alcohol policies and highway vehicle fatalities," Journal of Health Economics, Elsevier, vol. 15(4), pages 435-454, August.
    11. Saffer, Henry & Chaloupka, Frank, 1999. "The Demand for Illicit Drugs," Economic Inquiry, Western Economic Association International, vol. 37(3), pages 401-411, July.
    12. Philip J. Cook & Michael J. Moore, 2001. "Environment and Persistence in Youthful Drinking Patterns," NBER Chapters, in: Risky Behavior among Youths: An Economic Analysis, pages 375-438, National Bureau of Economic Research, Inc.
    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. W. Kip Viscusi, 1995. "Cigarette Taxation and the Social Consequences of Smoking," NBER Chapters, in: Tax Policy and the Economy, Volume 9, pages 51-102, National Bureau of Economic Research, Inc.
    15. Markowitz, Sara & Grossman, Michael, 2000. "The effects of beer taxes on physical child abuse," Journal of Health Economics, Elsevier, vol. 19(2), pages 271-282, March.
    16. Colman, Greg & Grossman, Michael & Joyce, Ted, 2003. "The effect of cigarette excise taxes on smoking before, during and after pregnancy," Journal of Health Economics, Elsevier, vol. 22(6), pages 1053-1072, November.
    17. Steven T. Yen & Andrew M. Jones, 1996. "Individual cigarette consumption and addiction: A flexible limited dependent variable approach," Health Economics, John Wiley & Sons, Ltd., vol. 5(2), pages 105-117, March.
    18. Frank J. Chaloupka & Michael Grossman & John A. Tauras, 1999. "The Demand for Cocaine and Marijuana by Youth," NBER Chapters, in: The Economic Analysis of Substance Use and Abuse: An Integration of Econometric and Behavioral Economic Research, pages 133-156, National Bureau of Economic Research, Inc.
    19. Friedrich Schneider, 2001. "What Do We Know About the Shadow Economy?," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 2(4), pages 19-32, October.
    20. Lewit, Eugene M. & Coate, Douglas, 1982. "The potential for using excise taxes to reduce smoking," Journal of Health Economics, Elsevier, vol. 1(2), pages 121-145, August.
    21. Chaloupka, Frank J. & Grossman, Michael & Bickel, Warren K. & Saffer, Henry (ed.), 1999. "The Economic Analysis of Substance Use and Abuse," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226100470, February.
    22. Dee, Thomas S., 1999. "State alcohol policies, teen drinking and traffic fatalities," Journal of Public Economics, Elsevier, vol. 72(2), pages 289-315, May.
    23. Michael Grossman & Frank J. Chaloupka & Henry Saffer & Adit Laixuthai, 1993. "Effects of Alcohol Price Policy on Youth," NBER Working Papers 4385, National Bureau of Economic Research, Inc.
    24. Becker, Gary S. & Grossman, Michael & Murphy, Kevin M., 1991. "Rational Addiction and the Effect of Price on Consumption," Working Papers 68, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    25. 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.
    26. Michael Grossman & Chee-Ruey Hsieh (ed.), 2001. "The Economic Analysis of Substance Use and Abuse," Books, Edward Elgar Publishing, number 2347.
    27. Chaloupka, Frank J & Saffer, Henry & Grossman, Michael, 1993. "Alcohol-Control Policies and Motor-Vehicle Fatalities," The Journal of Legal Studies, University of Chicago Press, vol. 22(1), pages 161-186, January.
    28. Gary S. Becker & Kevin M. Murphy & Michael Grossman, 2004. "The Economic Theory of Illegal Goods: The Case of Drugs," NBER Working Papers 10976, National Bureau of Economic Research, Inc.
    29. 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.
    30. Andrew M. Jones, 2012. "health econometrics," The New Palgrave Dictionary of Economics,, Palgrave Macmillan.
    31. Saffer, Henry, 1991. "Alcohol advertising bans and alcohol abuse: An international perspective," Journal of Health Economics, Elsevier, vol. 10(1), pages 65-79, May.
    32. Michael J. Moore, 1996. "Death and Tobacco Taxes," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 415-248, Summer.
    33. Jonathan Gruber & Jonathan Zinman, 2001. "Youth Smoking in the United States: Evidence and Implications," NBER Chapters, in: Risky Behavior among Youths: An Economic Analysis, pages 69-120, National Bureau of Economic Research, Inc.
    34. Becker, Gary S, 1992. "Habits, Addictions, and Traditions," Kyklos, Wiley Blackwell, vol. 45(3), pages 327-345.
    35. Suren Basov & Mireille Jacobson & Jeffrey A. Miron, 2001. "Prohibition and the Market for Illegal Drugs," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 2(4), pages 133-157, October.
    36. Cook, Philip J. & Moore, Michael J., 1993. "Drinking and schooling," Journal of Health Economics, Elsevier, vol. 12(4), pages 411-429, December.
    37. Lewit, Eugene M & Coate, Douglas & Grossman, Michael, 1981. "The Effects of Government Regulation on Teenage Smoking," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 545-569, December.
    38. Caulkins, J.P. & Schoeff, D., 2001. "Drug prices and emergency department mentions for cocaine and heroin," American Journal of Public Health, American Public Health Association, vol. 91(9), pages 1446-1448.
    39. Becker, Gary S & Grossman, Michael & Murphy, Kevin M, 1994. "An Empirical Analysis of Cigarette Addiction," American Economic Review, American Economic Association, vol. 84(3), pages 396-418, June.
    40. Farrell, Phillip & Fuchs, Victor R. & Fuchs, Victor R., 1982. "Schooling and health : The cigarette connection," Journal of Health Economics, Elsevier, vol. 1(3), pages 217-230, December.
    41. Philip DeCicca & Donald Kenkel & Alan Mathios, 2002. "Putting Out the Fires: Will Higher Taxes Reduce the Onset of Youth Smoking?," Journal of Political Economy, University of Chicago Press, vol. 110(1), pages 144-169, February.
    42. Frank J. Chaloupka & Michael Grossman, 1996. "Price, Tobacco Control Policies and Youth Smoking," NBER Working Papers 5740, National Bureau of Economic Research, Inc.
    43. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    44. Frank J. Chaloupka & Michael Grossman & Warren K. Bickel & Henry Saffer, 1999. "Introduction to "The Economic Analysis of Substance Use and Abuse: An Integration of Econometrics and Behavioral Economic Research"," NBER Chapters, in: The Economic Analysis of Substance Use and Abuse: An Integration of Econometric and Behavioral Economic Research, pages 1-14, National Bureau of Economic Research, Inc.
    45. Carpenter, Christopher, 2004. "How do Zero Tolerance Drunk Driving Laws work?," Journal of Health Economics, Elsevier, vol. 23(1), pages 61-83, January.
    46. 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.
    47. Douglas, Stratford, 1998. "The Duration of the Smoking Habit," Economic Inquiry, Western Economic Association International, vol. 36(1), pages 49-64, January.
    48. Robert L. Ohsfeldt & Michael A. Morrisey, 1997. "Beer Taxes, Workers' Compensation, And Industrial Injury," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 155-160, February.
    49. Schoenbaum, M., 1997. "Do smokers understand the mortality effects of smoking? Evidence from the health and retirement survey," American Journal of Public Health, American Public Health Association, vol. 87(5), pages 755-759.
    50. Kuziemko, Ilyana & Levitt, Steven D., 2004. "An empirical analysis of imprisoning drug offenders," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 2043-2066, August.
    51. Jeffrey A. Miron, 2003. "The Effect of Drug Prohibition on Drug Prices: Evidence from the Markets for Cocaine and Heroin," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 522-530, August.
    52. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    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. 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.
    6. Anne Bretteville-Jensen, 2006. "Drug Demand – Initiation, Continuation and Quitting," De Economist, Springer, vol. 154(4), pages 491-516, December.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    11. 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.
    12. 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.
    13. Gwendolyn Alexander Tedeschi, 2007. "Drug Markets: A Classroom Experiment," The American Economist, Sage Publications, vol. 51(1), pages 75-84, March.
    14. Craig Lemboe & Philip Black, 2012. "Cigarettes taxes and smuggling in South Africa: Causes and Consequences," Working Papers 09/2012, Stellenbosch University, Department of Economics.
    15. 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.
    16. Nelson, Jon P., 2006. "Cigarette advertising regulation: A meta-analysis," International Review of Law and Economics, Elsevier, vol. 26(2), pages 195-226, June.
    17. Cláudia Costa Storti & Paul De Grauwe, 2007. "Globalization and the Price Decline of Illicit Drugs," CESifo Working Paper Series 1990, CESifo.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dave, Dhaval, 2006. "The effects of cocaine and heroin price on drug-related emergency department visits," Journal of Health Economics, Elsevier, vol. 25(2), pages 311-333, March.
    2. Cook, Philip J. & Moore, Michael J., 2000. "Alcohol," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 30, pages 1629-1673, Elsevier.
    3. Dhaval Dave, 2004. "Illicit Drug Use Among Arrestees and Drug Prices," NBER Working Papers 10648, National Bureau of Economic Research, Inc.
    4. Cook, Philip J. & Moore, Michael J., 1999. "Alcohol," Working Papers 156, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    5. Michael Grossman, 1993. "Policy Watch: Alcohol and Cigarette Taxes," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 211-222, Fall.
    6. Charles L. Baum, 2009. "The effects of cigarette costs on BMI and obesity," Health Economics, John Wiley & Sons, Ltd., vol. 18(1), pages 3-19, January.
    7. Philip J. Cook & Michael J. Moore, 2001. "Environment and Persistence in Youthful Drinking Patterns," NBER Chapters, in: Risky Behavior among Youths: An Economic Analysis, pages 375-438, National Bureau of Economic Research, Inc.
    8. Andrew M. Jones & José M. Labeaga, 2003. "Individual heterogeneity and censoring in panel data estimates of tobacco expenditure," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(2), pages 157-177.
    9. Anne Bretteville-Jensen, 2006. "Drug Demand – Initiation, Continuation and Quitting," De Economist, Springer, vol. 154(4), pages 491-516, December.
    10. DeCicca, Philip & Kenkel, Donald & Mathios, Alan, 2000. "Putting Out The Fires: Will Higher Taxes Reduce Youth Smoking?," Working Papers 00-3, University of Aarhus, Aarhus School of Business, Department of Economics.
    11. Göhlmann, Silja & Schmidt, Christoph M., 2008. "Smoking in Germany: Stylized Facts, Behavioral Models, and Health Policy," Ruhr Economic Papers 64, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    12. Donald S. Kenkel & Ping Wang, 1999. "Are Alcoholics in Bad Jobs?," NBER Chapters, in: The Economic Analysis of Substance Use and Abuse: An Integration of Econometric and Behavioral Economic Research, pages 251-278, National Bureau of Economic Research, Inc.
    13. 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.
    14. Grimard, Franque & Parent, Daniel, 2007. "Education and smoking: Were Vietnam war draft avoiders also more likely to avoid smoking?," Journal of Health Economics, Elsevier, vol. 26(5), pages 896-926, September.
    15. Markowitz, Sara, 2005. "Alcohol, Drugs and Violent Crime," International Review of Law and Economics, Elsevier, vol. 25(1), pages 20-44, March.
    16. Ziggy MacDonald, 2004. "What Price Drug Use? The Contribution of Economics to an Evidence‐Based Drugs Policy," Journal of Economic Surveys, Wiley Blackwell, vol. 18(2), pages 113-152, April.
    17. Rosalie Liccardo Pacula & Michael Grossman & Frank J. Chaloupka & Patrick M. O'Malley & Lloyd D. Johnston & Matthew C. Farrelly, 2001. "Marijuana and Youth," NBER Chapters, in: Risky Behavior among Youths: An Economic Analysis, pages 271-326, National Bureau of Economic Research, Inc.
      • R. L. Pacula & M. Grossman & F. J. Chaloupka & P. M. O'Malley & Lloyd D. Johnston & Matthew C. Farrelly, 2000. "Marijuana and Youth," NBER Working Papers 7703, National Bureau of Economic Research, Inc.
    18. Michael Grossman & Sara Markowitz, 1999. "Alcohol Regulation and Violence on College Campuses," NBER Working Papers 7129, National Bureau of Economic Research, Inc.
    19. Carlos Casacuberta & Mariana Gerstenblüth & Patricia Triunfo, 2012. "Aportes del análisis económico al estudio de las drogas," Documentos de Trabajo (working papers) 0112, Department of Economics - dECON.
    20. Jofre-Bonet, Mireia & Petry, Nancy M., 2008. "Trading apples for oranges?: Results of an experiment on the effects of Heroin and Cocaine price changes on addicts' polydrug use," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 281-311, May.

    More about this item

    JEL classification:

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

    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:nbr:nberwo:10948. 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: . General contact details of provider: https://edirc.repec.org/data/nberrus.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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    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.