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Addiction and Smoking Behaviour in Italy

  • Silvia Tiezzi


Since the end of the eighties the Becker and Murphy model of rational addiction has been the dominant approach to estimate addiction e ects. The main implication of the model is that public policy, in principle, should not interfere with a fully rational behaviour. However, the additional public health care costs smokers impose on non smokers could be internalised using price mechanisms, as the long run price elasticity of demand is supposed to be, according to this model, significantly higher than the short run one and higher than that obtained from alternative models of addiction, such as the habit persistence model. In this paper we estimate the demand for Tobacco and related products in Italy using PANEL data supplied by ISTAT for the twenty Italian regions. The rational addiction model is used to estimate addiction e ects following the methodological approach suggested by Baltagi and Levin (2001). The myopic addiction model is also estimated as an alternative way of modelling addiction e ects. These data seem to support the rational addiction model, although the results are not clearcut. We have thus estimated the same models using Time Series of per-capita Households Tobacco expenditures from the Italian National Accounts. In this case, the data strongly support the Rational Addiction model and produce elasticities in line with similar case studies.

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Paper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 412.

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Date of creation: Dec 2003
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Handle: RePEc:usi:wpaper:412
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  1. 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.
  2. 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.
  3. 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.
  4. Keane, Michael P & Runkle, David E, 1992. "On the Estimation of Panel-Data Models with Serial Correlation When Instruments Are Not Strictly Exogenous," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(1), pages 1-9, January.
  5. Bask, Mikael & Melkersson, Maria, 2000. "Rational Addiction when there are Two Addictive Goods: Cigarettes and Smokeless Tobacco," Umeå Economic Studies 545, Umeå University, Department of Economics.
  6. Nilss Olekalns & Peter Bardsley, 1994. "Rational Addiction to Caffeine: an Analysis of Coffee Consumption," Working Papers 1994.21, School of Economics, La Trobe University.
  7. Gary S. Becker & Kevin M. Murphy, 1986. "A Theory of Rational Addiction," University of Chicago - George G. Stigler Center for Study of Economy and State 41, Chicago - Center for Study of Economy and State.
  8. Michael Grossman & Frank J. Chaloupka & Charles C. Brown, 1996. "The Demand for Cocaine by Young Adults: A Rational Addiction Approach," NBER Working Papers 5713, National Bureau of Economic Research, Inc.
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  10. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  11. Michael Grossman & Frank J. Chaloupka & Ismail Sirtalan, 1995. "An Empirical Analysis of Alcohol Addiction: Results from the Monitoring the Future Panels," NBER Working Papers 5200, National Bureau of Economic Research, Inc.
  12. Labeaga, Jose M., 1999. "A double-hurdle rational addiction model with heterogeneity: Estimating the demand for tobacco," Journal of Econometrics, Elsevier, vol. 93(1), pages 49-72, November.
  13. Chaloupka, Frank J. & Warner, Kenneth E., 2000. "The economics of smoking," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 29, pages 1539-1627 Elsevier.
  14. Chaloupka, Frank, 1991. "Rational Addictive Behavior and Cigarette Smoking," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 722-42, August.
  15. Samuel Cameron, 1997. "Are Greek smokers rational addicts?," Applied Economics Letters, Taylor & Francis Journals, vol. 4(7), pages 401-402.
  16. Laux, Fritz L., 2000. "Addiction as a market failure: using rational addiction results to justify tobacco regulation," Journal of Health Economics, Elsevier, vol. 19(4), pages 421-437, July.
  17. 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.
  18. 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.
  19. Samuel Cameron, 1999. "Rational addiction and the demand for cinema," Applied Economics Letters, Taylor & Francis Journals, vol. 6(9), pages 617-620.
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  21. 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.
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