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by Frank Chaloupka National
Bureau of Economic Research, Inc. 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 for 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 time 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.
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