IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/22251.html
   My bibliography  Save this paper

The Effect of Cigarette Prices on Cigarette Sales: Exploring Heterogeneity in Price Elasticities at High and Low Prices

Author

Listed:
  • John A. Tauras
  • Michael F. Pesko
  • Jidong Huang
  • Frank J. Chaloupka
  • Matthew C. Farrelly

Abstract

Numerous studies have examined the effect of cigarette prices on cigarette consumption. These studies either evaluate the price elasticity of demand for each observation and report the average price elasticity across all observations or report the price elasticity of demand at the mean of the price variable. Policy makers rely on these average price elasticity estimates for public health and revenue generation purposes. The use of an average price elasticity may yield misleading predictions given the substantial variation in cigarette prices between states. This research is the first econometric study to examine the price elasticity of cigarette demand at different price levels. We use aggregate state-level data for years 1991 – 2012 and employ generalized linear models with log link and gamma distribution to estimate cigarette demand equations. We find that the absolute value of the price elasticity of demand monotonically increases with price. The findings from this study will be valuable to policymakers contemplating the use of cigarette excise taxes to reduce cigarette consumption or to generate revenue.

Suggested Citation

  • John A. Tauras & Michael F. Pesko & Jidong Huang & Frank J. Chaloupka & Matthew C. Farrelly, 2016. "The Effect of Cigarette Prices on Cigarette Sales: Exploring Heterogeneity in Price Elasticities at High and Low Prices," NBER Working Papers 22251, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:22251
    Note: EH
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w22251.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Farrelly, Matthew C. & Pechacek, Terry F. & Chaloupka, Frank J., 2003. "The impact of tobacco control program expenditures on aggregate cigarette sales: 1981-2000," Journal of Health Economics, Elsevier, vol. 22(5), pages 843-859, September.
    2. Manning, Willard G. & Mullahy, John, 2001. "Estimating log models: to transform or not to transform?," Journal of Health Economics, Elsevier, vol. 20(4), pages 461-494, July.
    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. Johanna Catherine Maclean & Michael F. Pesko & Steven C. Hill, 2017. "The Effect of Insurance Expansions on Smoking Cessation Medication Prescriptions: Evidence from ACA Medicaid Expansions," NBER Working Papers 23450, National Bureau of Economic Research, Inc.
    2. Saša Ranđelović & Milica Bisić, 2021. "Excise duties harmonisation and smoking in a model with cross-border arbitrage," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(2), pages 507-532, May.
    3. Leah K. Lakdawala & David Simon, 2016. "The Intergenerational Consequences of Tobacco Policy," Working papers 2016-27, University of Connecticut, Department of Economics.
    4. Susan Xu Tang & David L. Sjoquist, 2019. "Differential Effects of Federal and State Gasoline Taxes on Gasoline Consumption," Hacienda Pública Española / Review of Public Economics, IEF, vol. 229(2), pages 11-32, June.
    5. Sinclair Davidson & Ashton de Silva, 2018. "Did Recent Tobacco Reforms Change the Cigarette Market?," Economic Papers, The Economic Society of Australia, vol. 37(1), pages 55-74, March.
    6. D. Dragone & D. Raggi, 2018. "Testing Rational Addiction: When Lifetime is Uncertain, One Lag is Enough," Working Papers wp1119, Dipartimento Scienze Economiche, Universita' di Bologna.
    7. Paolo Liberati & Francesco Crespi & Massimo Paradiso & Simone Tedeschi & Antonio Scialà, 2018. "Smokers Are Different: The Heterogeneity Of Smokers’ Responses To Price Increases," Departmental Working Papers of Economics - University 'Roma Tre' 0237, Department of Economics - University Roma Tre.

    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. Samuel Sebsibie & Workineh Asmare & Tessema Endalkachew, 2015. "Agricultural Technology Adoption and Rural Poverty: a Study on Smallholders in Amhara Regional State, Ethiopia," Ethiopian Journal of Economics, Ethiopian Economics Association, vol. 23(2), December.
    2. Thorvaldur Gylfason & Inmaculada Martínez-Zarzoso & Per Magnus Wijkman, 2015. "Free Trade Agreements, Institutions and the Exports of Eastern Partnership Countries," Journal of Common Market Studies, Wiley Blackwell, vol. 53(6), pages 1214-1229, November.
    3. Patrick Richard & Regine Walker & Pierre Alexandre, 2018. "The burden of out of pocket costs and medical debt faced by households with chronic health conditions in the United States," PLOS ONE, Public Library of Science, vol. 13(6), pages 1-13, June.
    4. Sankar Mukhopadhyay & Wei Yang & Wai Lee & Jeanne Wendel, 2008. "Analyzing the impact of prenatal care on infant health: do we have useful input and output measures?," Economics Bulletin, AccessEcon, vol. 9(22), pages 1-14.
    5. Trottmann, Maria & Zweifel, Peter & Beck, Konstantin, 2012. "Supply-side and demand-side cost sharing in deregulated social health insurance: Which is more effective?," Journal of Health Economics, Elsevier, vol. 31(1), pages 231-242.
    6. Schaak, Henning, 2015. "The Impact of Free Trade Agreements on International Agricultural Trade: A Gravity Application on the Dairy Product Trade and the ASEAN-China-FTA," 55th Annual Conference, Giessen, Germany, September 23-25, 2015 211619, German Association of Agricultural Economists (GEWISOLA).
    7. Buntin, Melinda Beeuwkes & Zaslavsky, Alan M., 2004. "Too much ado about two-part models and transformation?: Comparing methods of modeling Medicare expenditures," Journal of Health Economics, Elsevier, vol. 23(3), pages 525-542, May.
    8. Santosh Kumar & Fidel Gonzalez, 2018. "Effects of health insurance on birth weight in Mexico," Health Economics, John Wiley & Sons, Ltd., vol. 27(8), pages 1149-1159, August.
    9. Anand Acharya & Lynda Khalaf & Marcel Voia & Myra Yazbeck & David Wensley, 2021. "Severity of Illness and the Duration of Intensive Care," Working Papers 2021-003, Human Capital and Economic Opportunity Working Group.
    10. Börner, Lars & Severgnini, Battista, 2011. "Epidemic trade," Discussion Papers 2011/12, Free University Berlin, School of Business & Economics.
    11. Judite Gonçalves & France Weaver, 2017. "Effects of formal home care on hospitalizations and doctor visits," International Journal of Health Economics and Management, Springer, vol. 17(2), pages 203-233, June.
    12. Michael Essman & Lindsey Smith Taillie & Tamryn Frank & Shu Wen Ng & Barry M Popkin & Elizabeth C Swart, 2021. "Taxed and untaxed beverage intake by South African young adults after a national sugar-sweetened beverage tax: A before-and-after study," PLOS Medicine, Public Library of Science, vol. 18(5), pages 1-17, May.
    13. D'Ambrosio, Anna & Montresor, Sandro, 2017. "Migration and Trade Ows: New Evidence from Spanish Regions," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201724, University of Turin.
    14. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    15. Odermatt, Reto & Stutzer, Alois, 2018. "Tobacco Control Policies and Smoking Behavior in Europe: More Than Trends?," Working papers 2018/24, Faculty of Business and Economics - University of Basel.
    16. Salmon, Claire & Tanguy, Jeremy, 2016. "Rural Electrification and Household Labor Supply: Evidence from Nigeria," World Development, Elsevier, vol. 82(C), pages 48-68.
    17. Fernández, José-Luis & Kendall, Jeremy & Davey, Vanessa & Knapp, Martin, 2007. "Direct payments in England: factors linked to variations in local provision," LSE Research Online Documents on Economics 15915, London School of Economics and Political Science, LSE Library.
    18. Singhal, Monica, 2008. "Special interest groups and the allocation of public funds," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 548-564, April.
    19. Timothy T. Brown & James C. Robinson, 2016. "Reference Pricing with Endogenous or Exogenous Payment Limits: Impacts on Insurer and Consumer Spending," Health Economics, John Wiley & Sons, Ltd., vol. 25(6), pages 740-749, June.
    20. Keith Davis & Timothy Bell & Jacqueline Miller & Derek Misurski & Bela Bapat, 2011. "Hospital costs, length of stay and mortality associated with childhood, adolescent and young Adult meningococcal disease in the US," Applied Health Economics and Health Policy, Springer, vol. 9(3), pages 197-207, May.

    More about this item

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • 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:22251. See general information about how to correct material in RePEc.

    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: the person in charge (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. RePEc uses bibliographic data supplied by the respective publishers.