An Empirical Analysis of Cigarette Addiction

Gary Becker, Michael Grossman and Kevin Murphy

No 3322, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We use a framework suggested by a model of rational addiction to analyze empirically the demand for cigarettes. The data consist of per capita cigarettes sales (in packs) annually by state for the period 1955 through 1985. The empirical results provide support for the implications of a rational addiction model that cross price effects are negative (consumption in different periods are complements), that long-run price responses exceed short-run responses, and that permanent price effects exceed temporary price effects. A 10 percent permanent increase in the price of cigarettes reduces current consumption by 4 percent in the short run and by 7.5 percent in the long run. In contrast, a 10 percent increase in the price for only one period decreases consumption by only 3 percent. In addition, a one period price increase of 10 percent reduces consumption in the previous period by approximately .7 percent and consumption in the subsequent period by 1.5 percent. These estimates illustrate the importance of the intertemporal linkages in cigarette demand implied by rational addictive behavior.

Date: 1990-04
Note: EH
References: View complete reference list from CitEc
Citations: View citations in EconPapers (267)

Published as American Economic Review, Vol. 84, no. 3, pp. 396-418, (June 1994).

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Journal Article: An Empirical Analysis of Cigarette Addiction (1994)
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