TY  - JOUR
AU  - Becker,Gary S.
AU  - Grossman,Michael
AU  - Murphy,Kevin M.
TI  - An Empirical Analysis of Cigarette Addiction
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3322
PY  - 1994
Y2  - August 1994
UR  - http://www.nber.org/papers/w3322
L1  - http://www.nber.org/papers/w3322.pdf
N1  - Author contact info:
Gary Becker
Department of Economics
University of Chicago
1126 East 59th Street
Chicago, IL   60637
Tel: 312/702-8254
E-Mail: gbecker@uchicago.edu

Michael Grossman
Ph.D. Program in Economics
City University of New York Graduate Center
365 Fifth Avenue, 5th Floor
New York, NY  10016-4309
Tel: 212/817-7959
Fax: 212/817-1597
E-Mail: mgrossman@gc.cuny.edu

Kevin M. Murphy
Booth School of Business
The University of Chicago
5807 S. Woodlawn Ave.
Chicago, IL  60637
Tel: 773/702-7280
Fax: 773/834-3554
E-Mail: murphy@chicagoBooth.edu
M2  - featured in NBER digest on 1990-07-01
AB  - We use a framework suggested by a model of rational addiction to analyze empirically the demand for cigarettes. The data consist of per capita cigarettes sales (in packs) annually by state for the period 1955 through 1985. The empirical results provide support for the implications of a rational addiction model that cross price effects are negative (consumption in different periods are complements), that long-run price responses exceed short-run responses, and that permanent price effects exceed temporary price effects. A 10 percent permanent increase in the price of cigarettes reduces current consumption by 4 percent in the short run and by 7.5 percent in the long run. In contrast, a 10 percent increase in the price for only one period decreases consumption by only 3 percent. In addition, a one period price increase of 10 percent reduces consumption in the previous period by approximately .7 percent and consumption in the subsequent period by 1.5 percent. These estimates illustrate the importance of the intertemporal linkages in cigarette demand implied by rational addictive behavior.
ER  -