32 Pages Posted: 22 Oct 2002
Date Written: October 7, 2002
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.
Keywords: Rational Addiction, Alcohol, Mental Health, Insurance, Parity
JEL Classification: I12, I18, K32, J32
Suggested Citation: Suggested Citation
Klick, Jonathan, Have a Drink on Us: Mental Health Parity, Rational Addiction, and Off-Setting Behavior (October 7, 2002). George Mason Law & Economics Research Paper No. 02-25. Available at SSRN: https://ssrn.com/abstract=338200 or http://dx.doi.org/10.2139/ssrn.338200