NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Individual Behaviors and Substance Use: The Role of Price

Michael Grossman

NBER Working Paper No. 10948
Issued in December 2004
NBER Program(s):   HE   CH

I discuss economic approaches to the demand for harmfully addictive substances and estimate time-series demand functions for the period from 1975 through 2003. My estimates suggest that changes in price can explain a good deal of the observed changes in cigarette smoking, binge alcohol drinking, and marijuana use by high school seniors. For example, the 70 percent increase in the real price of cigarettes since 1997 due to the Medicaid Master Settlement Agreement explains almost all of the 12 percentage point reduction in the cigarette smoking participation rate since that year. The 7 percent increase in the real price of beer between 1990 and 1992 due to the Federal excise tax hike on that beverage in 1991 accounts for almost 90 percent of the 4 percentage point decline in binge drinking in the period at issue. The wide swings in the real price of marijuana explain 70 percent of the reduction in particpation from 1975 to 1992, 60 percent of the subsequent growth to 1997, and almost 60 percent of the decline since that year. I conclude with implications for tax policy and for the lively and contentious debate concerning the legalization of marijuana, cocaine, and heroin.

download in pdf format
   (247 K)

email paper

A non-technical summary of this paper is available in the May 2005 NBER digest.  You can sign up to receive the NBER Digest by email.

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

This paper is available as PDF (247 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w10948

Published: Substance Use: Individual Behavior, Social Interaction, Markets and Politics, edited by Bjorn Lindgren and Michael Grossman. Volume 16 of Advances in Health Economics and Health Services Research. Amsterdam: JAI, an imprint of Elsevier Ltd., 2005, pp. 15-39

Users who downloaded this paper also downloaded these:
Becker, Murphy, and Grossman w10976 The Economic Theory of Illegal Goods: The Case of Drugs
Donohue, Ewing, and Peloquin w16776 Rethinking America's Illegal Drug Policy
Saffer and Chaloupka w5238 The Demand for Illicit Drugs
Grossman, Chaloupka, and Brown w5713 The Demand for Cocaine by Young Adults: A Rational Addiction Approach
Pacula, Grossman, Chaloupka, O'Malley, Johnston, and Farrelly w7703 Marijuana and Youth
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us