Faculty Scholarly Dissemination Grants

An Assessment of the Forward Looking Hypothsis of the Demand for Cigarettes

Department

Economics Department

College

Seidman College of Business

Date Range

2014-2015

Disciplines

Business

Abstract

A prominent theory of cigarette consumption in economics is the rational addiction model of Becker and Murphy. The key prediction of this model is that current consumption is influenced not only by past consumption, but also future consumption. While several papers have found evidence to support the rational addiction model, many others have noted the fragility of these estimates, and, in general, that empirical assessment of the rational addiction model is difficult given current data and methods. In this paper, we develop a simple theory of the demand for cigarettes that incorporates forward looking behavior related to the adverse health consequences of smoking and the addictive nature of cigarettes. The model is used to generate several hypotheses about the relationship between cigarette tax/price changes and the characteristics of smokers. We then test these hypotheses using data from the Current Population Survey Tobacco Use Supplements.

Conference Name

Sixth Annual Midwest Health Economics Conference

Conference Location

Iowa City, IA

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