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An Empirical Analysis of Cigarette Addiction

57 Pages Posted: 27 Apr 2000 Last revised: 9 Aug 2010

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)

Date Written: April 1990

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.

Suggested Citation

Becker, Gary S. and Grossman, Michael and Murphy, Kevin M., An Empirical Analysis of Cigarette Addiction (April 1990). NBER Working Paper No. w3322. Available at SSRN: https://ssrn.com/abstract=226658

Gary S. Becker (Contact Author)

University of Chicago - Department of Economics ( email )

1126 East 59th Street
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University of Chicago - Booth School of Business

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Michael Grossman

City University of New York Graduate Center ( email )

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National Bureau of Economic Research (NBER), NY Office ( email )

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Kevin M. Murphy

University of Chicago ( email )

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Chicago, IL 60637
United States
773-702-7280 (Phone)
773-702-2699 (Fax)

National Bureau of Economic Research (NBER)

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