THE ECONOMICS OF ADDICTION

Aju's papers on addiction:

Structural Change in Cigarette Demand: Cusum Tests using Panel Data (With John R. Schroeter,  Economics Bulletin, September 2005)

Cigarettes and Addiction Information: Simulating the Demand Effects of the Tobacco Industry’s ‘Conspiracy of Silence,’” (With  John R. Schroeter Applied Economics, October 2004, Vol 36, No. 19)

Cigarettes and Addiction Information: New Evidence on the Rational Addiction Model (With Frances Antonovitz and John Schroeter Economics Letters, June 2001)  

ABSTRACTS

Cigarettes and Addiction Information: Simulating the Demand Effects of the Tobacco Industry’s ‘Conspiracy of Silence,’” (With  John R. Schroeter Applied Economics, October 2004, Vol 36, No. 19)

Abstract:  Although cigarette manufacturers were aware of the addictive properties of nicotine as early as 1962, the information did not become available to the U.S. public until 1979 when it was disclosed by the Surgeon General.  This study simulates the impact that this information would have had on the demand for cigarettes had it been released in 1963.  The simulations build on past work which found evidence that the release of addiction information resulted in a structural shift in demand in 1979.  A state disaggregated annual time series (1955 - 1994) for the U.S. comprised of consumption, price, and income data along with three smuggling indices was used to simulate the impact of the release of addiction information on a state by state basis.  This study finds that over the period 1963 - 1987 per capita smoking per year would have declined by a significant amount.   The result would have meant huge losses in sales revenues for the tobacco industry.  The study also computes the dollar value of the simulated loss in sales for the entire industry on a state by state basis.  These dollar figures provide a benchmark against which to compare the compensation amounts of the recent tobacco settlements.  

Cigarettes and Addiction Information: New Evidence on the Rational Addiction Model (With Frances Antonovitz and John Schroeter Economics Letters, June 2001)  

Abstract: Becker and Murphy (1988) introduced the model of rational addiction in which consumers of addictive goods make consumption decisions in light of the future consequences of those decisions.  Becker, Grossman, and Murphy (BGM) (1994) found evidence that forward-looking, or "rational," formulations for cigarette demand perform better than "myopic" alternatives.  The focus of this study is the impact of addiction information on cigarette demand.  Given that a 1979 U.S. Surgeon General's announcement was a watershed event in the public's awareness of the pharmacological addictiveness of nicotine, one might suspect that cigarette consumption behavior was myopic prior to 1979, but rational thereafter.  Using an extended version of the BGM data set, we test that hypothesis.

Structural Change in Cigarette Demand: Cusum Tests using Panel Data (With John R. Schroeter)

Abstract:  We conduct cusum tests of structural change in a rational addiction model of cigarette demand estimated using a panel of annual time series of state-level data.  The results provide evidence of demand shifts during the modern era of health warnings and anti-smoking campaigns.