When other factors are held constant, mental illness does increase use of addictive goods -- relative to use by the overall population -- by 20 percent for alcohol, 27 percent for cocaine, and 86 percent for cigarettes.
Mental illness is defined as an abnormality in cognition, emotion, mood, or social function, which is severe in level or duration. Many people experience personal upheavals, but a true diagnosable mental illness affects about 24 percent of the U.S. population in any given year. Still, a staggering 43 percent of the population has had a diagnosable mental illness at some point in their lives.
There is a definite connection between mental illness and the use of addictive substances. Individuals with an existing mental illness consume roughly 38 percent of all alcohol, 44 percent of all cocaine, and 40 percent of all cigarettes. Furthermore, the people who have ever experienced mental illness consume about 69 percent of all the alcohol, 84 percent of all the cocaine, and 68 percent of all cigarettes.
Previously economists showed that price increases reduce the use of alcohol, illegal drugs, and tobacco. NBER Research Associate Henry Saffer and co-author Dhaval Dave theorize that if mental illness does alter the demand for addictive goods, then those individuals' consumption may be either more or less responsive to higher prices. In Mental Illness and the Demand for Alcohol, Cocaine, and Cigarettes (NBER Working Paper No. 8699), they propose that if people with mental illness are strongly affected by increased prices, then tax increases are a justifiable method for reducing consumption within this high-consuming group.
The researchers analyze data from a 1991 survey of 8,098 respondents conducted by the National Comorbidity Survey (NCS), a congressionally mandated study of mental illness in the United States. The survey defines 12 disorder groups; individuals were classified as mentally ill if they met the criteria for any one of the disorders. The survey also contained a series of detailed questions regarding alcohol, cocaine, and tobacco consumption. Information about the subject's family history and stressful life events, such as legal problems, loss of a close relationship, and poor physical health, also were obtained.
The data allow Saffer and Dave to address the effect of mental illness on the level of both consumption and price sensitivity. The researchers discover that, when other factors are held constant, mental illness does increase use of addictive goods -- relative to use by the overall population -- by 20 percent for alcohol, 27 percent for cocaine, and 86 percent for cigarettes. A history of mental illness increases participation (relative to participation in the overall population) by 25 percent for alcohol, 69 percent for cocaine, and 94 percent for cigarettes. Family history increases consumption of alcohol and cocaine for the mentally ill, but the influence is actually weaker than for those without mental illness.
The authors find that individuals with mental illness are sensitive to price changes, but that their sensitivity to price changes is roughly similar to those who are not mentally ill. The increased prices of the addictive good will dampen its use by the mentally ill, so alcohol and tobacco taxes may be a valuable policy tool.
-- Marie Bussing-Birks