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Tobacco and Alcohol: Complements or Substitutes? A Structural Model Approach

Harald Tauchmann (), Silja Göhlmann, Till Requate () and Christoph Schmidt
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Silja Göhlmann: RWI

Authors registered in the RePEc Author Service: Silja Goehlmann

No 3412, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The question of whether two drugs – namely alcohol and tobacco – are used as complements or substitutes is of crucial interest if side-effects of anti-smoking policies are considered. Numerous papers have empirically addressed this issue by estimating demand systems for alcohol and tobacco and subsequently calculating cross-price effects. However, this traditional approach often is seriously hampered by insufficient price-variation observed in survey data. We therefore suggest an alternative instrumental variables approach that statistically mimics an experimental study and does not rely on prices as explanatory variables. This approach is applied to German survey data. Our estimation results suggest that a reduction in tobacco consumption results in a moderate reduction in alcohol consumption. It is shown theoretically that this implies that alcohol and tobacco are complements. Hence, we conclude that successful anti-smoking policies will not result in the unintended side-effect of an increased (ab)use of alcohol.

Keywords: insufficient price-variation; instrumental variables approach; complements or substitutes; tobacco and alcohol; interdependence in consumption (search for similar items in EconPapers)
JEL-codes: C31 D12 I12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-hea and nep-mkt
Date: 2008-03
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Published online as 'Tobacco and Alcohol: Complements or Substitutes? A Structural Model Approach to Insufficient Price Variation in Individual-Level Data' in: Empirical Economics, 2013, 45(1), 539-566

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Working Paper: Tobacco and Alcohol: Complements or Substitutes? A Structural Model Approach (2008) Downloads
Working Paper: Tobacco and Alcohol: Complements or Substitutes? – A Structural Model Approach (2007) Downloads
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