NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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A Model of Addiction and Social Interactions

Julian Reif

NBER Working Paper No. 24842
Issued in July 2018
NBER Program(s):Health Care, Health Economics, Law and Economics, Public Economics

Many consumer behaviors are both addictive and social. Understanding how these two phenomena interact informs basic models of human behavior, and matters for policymakers when the behavior is regulated. I develop a new model of demand that incorporates both addiction and social interactions and show that, under certain conditions, social interactions reinforce the effects of addiction. I also show how the dynamics introduced by addiction can solve the pernicious problem of identifying the causal effects of social interactions. I then use the model to illustrate a new and important identification problem for studies of social interactions: existing estimates cannot be used to draw welfare conclusions or even to deduce whether social interactions increase aggregate demand. Finally, I develop a method that allows researchers to distinguish between two common forms of social interactions and draw welfare conclusions.

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Document Object Identifier (DOI): 10.3386/w24842

 
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