A Dynamic Simultaneous-Equations Model for Cigarette Consumption in the Western States
This paper presents a rational addiction model, which integrates the addictive behavior of smokers toward cigarette consumption and the dynamic, profit-maximizing behavior of an oligopoly of cigarette producers. This model is tested on a panel data for eleven western states over the period of 1967-1990, using simultaneous estimation techniques. The results suggest the following conclusions: first, cigarette consumption is price-sensitive, with a demand elasticity of about -.33 in the short run and -.44 in the long run. These elasticities are smaller than those reported in most previous studies. Second, our results at least partially confirm the theory of rational addiction. Third, our model of oligopoly behavior confirms the hypothesis that the tobacco companies often do, as a part of their oligopoly behavior, raise end-market prices by more than the amount of the tax. Fourth, our results indicate that antismoking ordinances matter in reducing cigarette consumption, though their estimated significance is marginal. Finally, our results indicate that a tax increase, such as that imposed in California as a result of Proposition 99 effective in January 1989, can have a strong effect on reducing cigarette consumption, ranging between 8 percent in the short run and 11 percent in the long run.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||01 Nov 1992|
|Contact details of provider:|| Postal: University of California at Berkeley, Berkeley, CA USA|
Web page: http://www.haas.berkeley.edu/groups/iber/wps/econwp.html
More information through EDIRC
|Order Information:|| Postal: IBER, F502 Haas Building, University of California, Berkeley CA 94720-1922|
When requesting a correction, please mention this item's handle: RePEc:ucb:calbwp:92-204. 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: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.