Does the Behaviour of Myopic Addicts Support the Rational Addiction model?: A Simulation

Björn Frank

No 301, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: Becker and Murphy (1988) constructed, in a well-known paper, a model of rational addiction in which people solve a dynamic optimization problem, choose an optimal timepath of drug consumption and thereby maximize lifetime utility. The model leads to the hypothesis that future consumption is a significant explanatory variable for present consumption. This paper briefly surveys the empirical studies which provide support for this hypothesis. Most of the authors claim to have found support for the Becker-Murphy model. However, this paper will show that it is possible to obtain qualitatively the same results for the consumption patterns of myopic addicts. To this end, an economy is simulated in which everyone behaves according to Pollak's (1970) paradigmatic alternative to the model of rational addiction.

Keywords: rational addiction; instrumental variables (search for similar items in EconPapers)
JEL-codes: C15 D12 D91 (search for similar items in EconPapers)
Pages: 14 p.
Date: 2002
New Economics Papers: this item is included in nep-cbe, nep-cmp, nep-hea and nep-mic
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