The impact of addiction information on cigarette consumption

Aju Fenn

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: Although cigarette manufacturers were aware of the addictive properties of nicotine as early as 1962, the information did not become available to the general public until 1979 when it was disclosed by the Surgeon General. This set of events presents an opportunity to test the impact of addiction information on the demand for an addictive good. This study posits that the release of addiction information serves to make consumers aware of the implications of current consumption levels for future choices. In the absence of addiction information about a good, consumers have to rely on their past consumption experience of the addictive good. This study posits that in the absence of addiction information, the demand for an addictive good will be myopic and that after the release of addiction information the demand for the addictive good will be rational. The model constructed in this paper empirically modifies the rational addiction model to allow for the possibility of structural changes in the demand function which may have occurred beginning in 1979 due to the release of addiction information. It reconciles the competing models of myopia and rationality by accounting for the availability of addiction information to consumers. In addition to this, the theoretical model generalizes the rational addiction model to include non-addictive goods. This innovation nests the demand for both addictive and non-addictive goods as sub cases of a single demand equation. The subsequent rational addiction demand equation that is derived from this model retains the ability to distinguish between rational and myopic behavior;The model is tested using annual state disaggregated data for the U.S. from 1955-1994. The results support the theoretical prediction of a switch from a myopic to a rational regime after the release of addiction information. The impacts of price and past consumption on current consumption decline in the post-information period.

Date: 1998-01-01
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Related works:
Working Paper: The Impact of Addiction Information On Cigarette Consumption (1999)
Working Paper: THE IMPACT OF ADDICTION INFORMATION ON CIGARETTE CONSUMPTION (1998)
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