Habits, Complementarities and Heterogenenity in Alcohol and Tobacco Demand: A Multivariate Dynamic Model
In this paper we test the existence of rational habit formation in a multivariate model for alcohol and tobacco consumption. The theoretical framework, based on a dynamic adjustment cost model with forward-looking behaviour, is enhanced to include the intertemporal interactions between the two goods. The analysis of the within-period preferences completes the intertemporal model, allowing to evaluate the static substitutability/complementarity relationships. The empirical strategy consists in a two step estimation procedure. In the first stage, the parameters of the demand system are obtained, while in a second stage Euler equations are estimated by a dynamic fixed-effects panel data model. Estimation results, based on a cohort dataset constructed from a series of crosssections of the ISTAT Italian Household Budget Survey, reveal a significant complementarity relationship between alcohol and tobacco. The Euler system estimation does not reject the hypothesis of intertemporal dependence, providing support for a forward-looking behaviour in alcohol and tobacco consumption. Moreover, we find significant intertemporal interactions for tobacco adjustments, while alcohol consumption seems to follow only its own adjustment dynamics.
|Date of creation:||Jun 2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.dse.univr.it
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Luca Fanelli, 2006. "Dynamic adjustment cost models with forward-looking behaviour," Econometrics Journal, Royal Economic Society, vol. 9(1), pages 23-47, 03.
- Rosalie Liccardo Pacula, 1997. "Letter: Economic modelling of the gateway effect," Health Economics, John Wiley & Sons, Ltd., vol. 6(5), pages 521-524.
- Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
- Gardes, Francois & Duncan, Greg J. & Gaubert, Patrice & Gurgand, Marc & Starzec, Christophe, 2005. "Panel and Pseudo-Panel Estimation of Cross-Sectional and Time Series Elasticities of Food Consumption: The Case of U.S. and Polish Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 242-253, April.
- Weissenberger, Edgar, 1986. "An intertemporal system of dynamic consumer demand functions," European Economic Review, Elsevier, vol. 30(4), pages 859-891, August.
- Angus Deaton & Christina Paxson, 2000. "Growth and Saving Among Individuals and Households," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 212-225, May.
- Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-29, October.
When requesting a correction, please mention this item's handle: RePEc:ver:wpaper:38. 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: (Michael Reiter)
If references are entirely missing, you can add them using this form.