Smoking and Health Investments: Impacts of Health Adaptation and Damage Reversibility
University of Oslo Health Economics Research Program Working Paper No. 2003:12
44 Pages Posted: 11 Aug 2003
Date Written: 2003
In the present paper we examine how different sets of beliefs about the health effects of smoking would influence a rational smoker. By embedding the rational addiction theory in a Grossman model of health investment modified to take account of psychological adaptation effects, we present a model of a rational addict that allows us to explicitly specify beliefs about a direct and indirect effect on both death risk and utility. This allows us to study how a rational addict would smoke with different beliefs of cancer risks, and with or without the well-documented ability to adapt to health changes. Numerical simulation results illustrate a number of different incentives that influence the smoking paths and health investments under the various beliefs, and suggests that beliefs have different impacts at different ages, providing a richer set of dynamics than might initially be expected.
Keywords: Rational addiction, Demand for health, Adaptation, Risk, Life extension
JEL Classification: C61, D91, I12
Suggested Citation: Suggested Citation