After a discussion of cigarette smoking in the context of the Becker-
Murphy (1988) model of rational addictive behavior, demand equations are
derived accounting for the tolerance, reinforcement, and withdrawal
characteristic of addictive consumption. These are contrasted to equations
developed under the competing hypotheses that smoking is not addictive or
that cigarettes are addictive but individuals behave myopically. The demand
equations are estimated using adults interviewed as part of the Second
National Health and Nutrition Examination Survey. Estimates support the
assumptions that cigarette smoking is an addictive behavior and that individuals
do not behave myopically. Long run price elasticities of demand,
fall in the range from -0.38 to -0.27. These estimates suggest that
increased excise taxation would be an effective way of reducing cigarette
smoking. Estimates for samples of current and ever smokers indicate that
price increases would lead to lower cigarette consumption among both groups.
Finally, the Becker-Murphy model's implications concerning the rate of tine
preference and addictive consumption are tested by estimating the demand for
cigarettes separately using samples based on age or education. Less educated
and younger individuals are found to behave much more myopically than their
more educated or older counterparts. Additionally, more addicted (myopic)
individuals are found to be more responsive, in the long run, to changes in
price than less addicted (myopic) individuals.
*Published:
Journal of Political Economy, Vol. 99, No. 4, pp. 722-742, (August 1991).
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