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Cigarette Smoking, Pregnancy, Forward Looking Behavior and Dynamic Inconsistency

This paper addresses two aspects of the model of rational addiction: forward looking behavior and time consistent preferences. It explores smoking by women before, during and after pregnancy using the European Community Household Panel (ECHP).Pregnancy is used as an instrument for a partially predictable future decrease in smoking. Women reduce the average number of cigarettes they smoke and many quit in the period 10 to 15 months before the birth of a child. Our analysis suggests that this effect may be stronger for married than for unmarried women, corresponding to the higher probability that the pregnancies of married women are planned. Pregnancy is also used as an instrument to estimate the parameters of a structural model of addiction. The estimates imply that cigarettes are highly addictive. Finally, we present statistically significant evidence that, even when the expected number of cigarettes smoked one month after the interview is taken into account, expected smoking further in the future has an independent effect on current consumption. This effect remains even when we impose the highest theoretically possible coefficient on expected cigarettes smoked one month after the interview. This means that the null of time consistency is (barely) rejected against the alternative of time inconsistency.

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Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 132.

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Length: 30 pages
Date of creation: 14 Nov 2008
Date of revision: 14 Nov 2008
Handle: RePEc:rtv:ceisrp:132
Contact details of provider: Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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Web page: http://www.ceistorvergata.it
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  1. George Loewenstein & Ted O'Donoghue & Matthew Rabin, 2001. "Projection Bias in Predicting Future Utility," General Economics and Teaching 0012003, EconWPA.
  2. Baltagi, Badi H & Griffin, James M, 2001. "The Econometrics of Rational Addiction: The Case of Cigarettes," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(4), pages 449-54, October.
  3. Greg Coleman & Michael Grossman & Ted Joyce, 2002. "The Effect of Cigarette Excise Taxes on Smoking Before, During and After Pregnancy," NBER Working Papers 9245, National Bureau of Economic Research, Inc.
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  7. W. Pesendorfer & F. Gul, 1999. "Temptation and Self-Control," Princeton Economic Theory Papers 99f1, Economics Department, Princeton University.
  8. Moffitt, Robert, 1993. "Identification and estimation of dynamic models with a time series of repeated cross-sections," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 99-123, September.
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  11. William N. Evans & Jeanne S. Ringel & Diana Stech, 1999. "Tobacco Taxes and Public Policy to Discourage Smoking," NBER Chapters, in: Tax Policy and the Economy, Volume 13, pages 1-56 National Bureau of Economic Research, Inc.
  12. Verbeek, M.J.C.M. & Vella, F., 2002. "Estimating dynamic models from repeated cross-sections," Econometric Institute Research Papers EI 2002-05, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  13. Loewenstein, George, 1996. "Out of Control: Visceral Influences on Behavior," Organizational Behavior and Human Decision Processes, Elsevier, vol. 65(3), pages 272-292, March.
  14. Jose Julian Escario & Jose Alberto Molina, 2001. "Testing for the rational addiction hypothesis in Spanish tobacco consumption," Applied Economics Letters, Taylor & Francis Journals, vol. 8(4), pages 211-215.
  15. B. Douglas Bernheim & Antonio Rangel, 2003. "Addiction and Cue-Conditioned Cognitive Processes," NajEcon Working Paper Reviews 666156000000000052, www.najecon.org.
  16. O'Donoghue, Ted & Rabin, Matthew, 2002. "Addiction and Present-Biased Preferences," Working Papers 02-10, Cornell University, Center for Analytic Economics.
  17. Evans, William N. & Ringel, Jeanne S., 1999. "Can higher cigarette taxes improve birth outcomes?," Journal of Public Economics, Elsevier, vol. 72(1), pages 135-154, April.
  18. Chaloupka, Frank, 1991. "Rational Addictive Behavior and Cigarette Smoking," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 722-42, August.
  19. Gary S.Grossman Becker & Michael Murphy & Kevin M., 1991. "Rational Addiction and the Effect of Price on Consumption," University of Chicago - George G. Stigler Center for Study of Economy and State 68, Chicago - Center for Study of Economy and State.
  20. Silvia Tiezzi, 2005. "An empirical analysis of tobacco addiction in Italy," The European Journal of Health Economics, Springer, vol. 6(3), pages 233-243, September.
  21. Frank J. Chaloupka & Kenneth E. Warner, 1999. "The Economics of Smoking," NBER Working Papers 7047, National Bureau of Economic Research, Inc.
  22. 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.
  23. Schelling, Thomas C, 1978. "Egonomics, or the Art of Self-Management," American Economic Review, American Economic Association, vol. 68(2), pages 290-94, May.
  24. Jonathan Gruber & Botond Koszegi, 2000. "Is Addiction "Rational"? Theory and Evidence," NBER Working Papers 7507, National Bureau of Economic Research, Inc.
  25. W. Pesendorfer & F. Gul, 1999. "Self-Control and the Theory of Consumption," Princeton Economic Theory Papers 99f2, Economics Department, Princeton University.
  26. Gary S. Becker & Michael Grossman & Kevin M. Murphy, 1990. "An Empirical Analysis of Cigarette Addiction," University of Chicago - George G. Stigler Center for Study of Economy and State 61, Chicago - Center for Study of Economy and State.
  27. B. Douglas Bernheim & Antonio Rangel, 2004. "Addiction and Cue-Triggered Decision Processes," American Economic Review, American Economic Association, vol. 94(5), pages 1558-1590, December.
  28. Pollak, Robert A, 1970. "Habit Formation and Dynamic Demand Functions," Journal of Political Economy, University of Chicago Press, vol. 78(4), pages 745-63, Part I Ju.
  29. Jonathan Gruber & Botond Köszegi, 2001. "Is Addiction "Rational"? Theory And Evidence," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1261-1303, November.
  30. W. David Bradford, 2003. "Pregnancy and the Demand for Cigarettes," American Economic Review, American Economic Association, vol. 93(5), pages 1752-1763, December.
  31. Baltagi, Badi H. & Levin, Dan, 1992. "Cigarette taxation: Raising revenues and reducing consumption," Structural Change and Economic Dynamics, Elsevier, vol. 3(2), pages 321-335, December.
  32. Baltagi, Badi H & Levin, Dan, 1986. "Estimating Dynamic Demand for Cigarettes Using Panel Data: The Effects of Bootlegging, Taxation and Advertising Reconsidered," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 148-55, February.
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