# Is the Rational Addiction model inherently impossible to estimate?

*Audrey Laporte*,
*Adrian Rohit Dass* and
*Brian Ferguson*

*Journal of Health Economics*, 2017, vol. 54, issue C, 161-175

**Abstract:**
The Rational Addiction (RA) model is increasingly often estimated using individual level panel data with mixed results; in particular, with regard to the implied rate of time discount. This paper suggests that the odd values of the rate of discount frequently found in the literature may in fact be a consequence of the saddle-point dynamics associated with individual level inter-temporal optimization problems. We report the results of Monte Carlo experiments estimating RA-type difference equations that seem to suggest the possibility that the presence of both a stable and an unstable root in the dynamic process may create serious problems for the estimation of RA equations.

**Keywords:** Rational Addiction; Time discount rate; Inter-temporal optimization; Saddle-point dynamics; Econometric estimation; Monte carlo simulation (search for similar items in EconPapers)

**Date:** 2017

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http://www.sciencedirect.com/science/article/pii/S0167629616305288

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**Related works:**

Working Paper: Is the Rational Addiction model inherently impossible to estimate? (2016)

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**Persistent link:** https://EconPapers.repec.org/RePEc:eee:jhecon:v:54:y:2017:i:c:p:161-175

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