Abstract

http://ssrn.com/abstract=226658
 
 

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An Empirical Analysis of Cigarette Addiction


Gary S. Becker


University of Chicago - Department of Economics; University of Chicago - Booth School of Business

Michael Grossman


National Bureau of Economic Research (NBER), NY Office; City University of New York Graduate Center

Kevin M. Murphy


University of Chicago; National Bureau of Economic Research (NBER)

August 1994

NBER Working Paper No. w3322

Abstract:     
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.

Number of Pages in PDF File: 57

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Date posted: April 27, 2000  

Suggested Citation

Becker, Gary S. and Grossman, Michael and Murphy, Kevin M., An Empirical Analysis of Cigarette Addiction (August 1994). NBER Working Paper No. w3322. Available at SSRN: http://ssrn.com/abstract=226658

Contact Information

Gary S. Becker (Contact Author)
University of Chicago - Department of Economics ( email )
1126 East 59th Street
Chicago, IL 60637
United States
University of Chicago - Booth School of Business
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
Michael Grossman
National Bureau of Economic Research (NBER), NY Office ( email )
365 Fifth Avenue, 5th Floor
New York, NY 10016-4309
United States
212-817-7959 (Phone)
212-817-1597 (Fax)
City University of New York Graduate Center ( email )
365 Fifth Avenue, 5th Floor
New York, NY 10016
United States
212-817-7959 (Phone)
212-817-1597 (Fax)
Kevin M. Murphy
University of Chicago ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7280 (Phone)
773-702-2699 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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