Have a Drink on Us: Mental Health Parity, Rational Addiction, and Off-Setting Behavior
University of Pennsylvania Law School; Erasmus School of Law; PERC - Property and Environment Research Center
October 7, 2002
George Mason Law & Economics Research Paper No. 02-25
I augment the standard rational addiction model to include an insurance component whereby the effects of addiction can be mitigated. The model implies that increasing the level of insurance in the future induces a forward-looking individual to consume more of a harmfully addictive good currently. I test this implication using the adoption of mental health parity mandates in some states during the 1990s as an exogenous shock on the availability of future insurance. I examine the effects of this shock on the consumption of alcohol and find that parity legislation led to a statistically significant increase in alcohol consumption. To account for the possible endogeneity of the adoption of mental health parity mandates, I perform an instrumental variables analysis of beer consumption, and find that my original analysis underestimates the effect by a factor of ten.
Number of Pages in PDF File: 32
Keywords: Rational Addiction, Alcohol, Mental Health, Insurance, Parity
JEL Classification: I12, I18, K32, J32working papers series
Date posted: October 22, 2002
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