tax competition and the creation of redundant products there are products that are assembled from kits but that once assembled are identical to other products an example is the roll your own cigarette because the kit requires time to assemble it is more costly than the assembled product in the absence of tax competition the kit is not bought or is redundant i show that tax competition between regions supports strategies that tax the redundant product at a lower tax rate than its assembled counterpart and it is bought a welfare loss is thereby created jel classification h71 bien des produits peuvent etre assembles a partir de trousses une fois assembles ces produits sont identiques a d autres produits un exemple est le fait de rouler ses propres cigarettes parce que la trousse reclame du temps pour l assemblage le produit coute plus cher que le produit deja assemble en l absence de concurrence fiscale on n achete pas la trousse ou elle est redondante on montre que la concurrence fiscale entre regions supporte des strategies qui taxent le produit redondant a un taux plus bas que sa contrepartie assemblee et que ce produit redondant est achete une perte de bien etre s ensuit

global dynamics in a model with search and matching in labor and capital markets abstract in this paper global macroeconomic dynamics are studied when search frictions are present in both labor and capital markets on the basis of the merz 1995 macroeconomic model with labor market frictions and capital accumulation our paper offers an extension to frictions in capital markets analogously modeled as a search and matching process using the merz model as limit case we consider exogenous as well as endogenous borrowing constraints we also allow the cost of issuing bonds to change endogenously as we show capital market frictions exacerbate and accentuate the interaction between the two markets and magnify the effects of shocks on output consumption employment and welfare this interaction of the frictions in labor and capital markets are also shown to give rise to multiple equilibria on the basis of numerical solution techniques instead of relying on first or second order approximations around a unique steady state our paper uses dynamic programming techniques to compute decision variables and the value function directly and assess the local and global dynamics of the model the steady state solutions are studied by using the hamiltonian and the dynamics are assessed for various model variants by using dynamic programming techniques

tobacco consumption and policy in the united kingdom in recent years several structural changes and sequences of shocks have occurred in the market for tobacco in the uk including an explosive growth in smuggling this study examines whether it is still possible to estimate a reliable plausible tobacco demand equation from time series data for the uk whilst allowing for all of the various shocks and structural changes a second objective of this study is to use the estimated demand function to evaluate tobacco policy in the uk including the scope for using tax increases to achieve reduced consumption and increased revenues it is found that smuggling has diminished the revenue yield of higher rates of duty but total consumption of tobacco has been reduced in addition to the introduction of further measures to control smuggling policy may need to place more emphasis in the future on health campaigns and smoking restrictions

tobacco taxes and regressivity recent literature on tobacco taxation suggests that optimal tax rates should be very high but such high taxes raise concerns over regressivity most econometric estimates of elasticities by income group use historic price data that are low and the usefulness of such estimates is therefore questionable on account of the serious out of sample prediction problem to address that problem this paper estimates price elasticities for different socioeconomic groups using recent canadian survey data for a period during which prices rose to a level of about 7 per pack the results provide little reason to overturn the traditional concerns about regressivity

the rise of obesity in transition theory and empirical evidence from russia this paper integrates theoretical and empirical models to study the rise of human obesity in russia during the transition from a planned to a market economy to test our hypotheses we use recent individual level data from the russian longitudinal monitoring survey for 1995 and 2004 capturing representative periods of early and late transition estimation results strongly support our model of production and supply of bmi body mass index and weight the analysis indicates strong links between dietary patterns individual characteristics environmental factors and obesity in russia understanding these relationships is important for designing effective public policies aiming to improve overall nutritional wellbeing and reduce obesity and mortality of the russian population interventions which enhance education and awareness of healthy lifestyles and healthy diet could play a vital role in preventing obesity in russia

an empirical illustration of an alternative approach to measuring the market power and high profits hypothesis this paper discusses the problems of testing the structure profit relationship and presents an alternative approach to measuring the market power and profitability hypothesis the results from an empirical study on firm level indicate that firms in a monopoly situation can maintain a high profitability if and only if there are extensive barriers to entry there seems however not to be a general linear relationship between concentration and profitability which has been a common assumption in many empirical studies in this area

the real consequences of financial stress abstract we introduce a dynamic banking macro model which abstains from conventional mean reversion assumptions and in which similar to brunnermeier and sannikov 2010 adverse asset price movements and their impact on risk premia and credit spreads can induce instabilities in the banking sector to assess such phenomena empirically we employ a multi regime vector autoregression mrvar approach rather than conventional linear vector autoregressions we conduct bivariate empirical analyses using country specific financial stress indices and industrial production for the u s the uk and the four large euro area countries our mrvar based impulse response studies demonstrate that compared to a linear specification response profiles are dependent on the current state of the economy as well as the sign and size of shocks previous multi regime based studies focusing solely on the regime dependence of responses conclude that during a high stress period stress increasing shocks have more dramatic consequences for economic activity than during low stress conducting size dependent response analysis we find that this holds only for small shocks and reverses when shocks become sufficiently large to induce immediate regime switches our findings also suggest that in states of high financial stress large negative shocks to financial stress have sizeable positive effects on real activity and support the idea of unconventional monetary policy measures in cases of extreme financial stress

what price drug use the contribution of economics to an evidence based drugs policy abstract this paper presents a review of the recent economics literature in the area of illicit drug use particular attention is paid to the economics of addiction and the rational addiction model the welfare economics framework for analysing the social costs of drug use and the attempts that have been made by economists to evaluate recent or proposed policy interventions a dominant theme in this review is the problem of poor data availability this is particularly true when it comes to implementing the rational addiction model but it is also apparent in the literature on estimating the costs of illicit drug use to society as a whole one of the main conclusions of this review is that until recently public policy has not been particularly influenced by research carried out by economists it is not clear whether this is because economists have had to grapple with inadequate data and hence their conclusions are couched in uncertainty or whether it is because drugs researchers have assumed a very limited role for economists in their analysis

estimating dynamic demand for cigarettes using panel data the effects of bootlegging taxation and advertising reconsidered abstracct a dynamic demand for cigarette consumption is estimated using pooled data of 46 states over the period 1963 to 1980 a price elasticity of 0 2 and an insignificant income elasticity is found using pooled estimation techniques the bootlegging effect is modeled explicitly using neighboring price the effect is found to be significant two major policy issues are analyzed in light of these new estimates 1 cigarette taxation is found to be an effective tool for generating revenues even though there may be spillover effects to neighboring states where bootlegging is significant 2 the effects of the fairness doctrine act and the advertising ban on cigarette consumption are re examined we find mild support for the effectiveness of subsidized anti smoking messages in reducing cigarette consumption and no support for the thesis that the ban on advertising helps to increase per capita consumption

liquidity flows and fragility of business enterprises abstract this paper develops a macroeconomic model in which funds are channeled to entrepreneurs through long term relationships between entrepreneurs and lenders the flow of funds to a relationship may be low causing it to break up due to insufficient liquidity multiple pareto ranked steady states emerge from complementarity between financial intermediation reflected by the number of relationships and households incentives to provide funds this complementarity also serves as a mechanism for propagating aggregate shocks financial collapse may become inescapable if a shock destroys sufficiently many relationships

the effects of price and smoking risk information on the demand for tobacco in taiwan an empirical study this study evaluates the effects of a cigarette price increase and smoking risk information on tobacco consumption in taiwan tobacco price expenditure and an index of smoking risk information for taiwan were introduced into a central bureau of statistics cbs demand model to estimate several cigarette demand elasticity coefficients according to this model increasing the cigarette price is a more effective means of reducing cigarette consumption than disseminating more risk information in addition we found that a price rise of nt 5 per cigarette pack would cause a reduction in the consumption of domestic and imported cigarettes of 3 23 and 4 86 packs per capita respectively total per capita consumption of cigarettes would be reduced annually by 8 09 packs 7 56 despite this reduction in cigarette consumption the increase in cigarette price would at the same time lead to a significant net increase in tax revenue to the taiwan government

advertising and the us market demand for beer the us per capita market demand for beer is empirically estimated to determine the effect of advertising on the demand for beer the empirical results indicate that the most important determinants of demand are the price of beer the price of substitutes demographic factors and a light beer dummy variable the positive effects of income and lagged consumption appear to be small although many have argued that advertising promotes beer consumption the empirical results of this study do not support this hypothesis

regime dependence of the fiscal multiplier abstract after the financial market meltdown of the years 2007 2008 the obama administration responded with large fiscal stimulus package yet the reaction to this stimulus has been diverse some predicted a multiplier effect in the order of 1 5 others argued that the multiplier will be less than 0 5 such multiplier estimates typically stem from estimated linear vector autoregressions vars or linearized versions of dsge models in this paper we argue that neither conventional var analysis nor linearized dgse models may be appropriate to evaluate demand effects arising from such a stimulus package the reason is as recent research suggests that the timing of demand shocks matters to assess the multiplier s variability we adopt a regime dependent var approach as is shown in detail our model specification is grounded on theoretical considerations the empirical analysis presented here suggests that a regime dependent var specification is favored for u s output and employment data and that the standard one regime var methodology is inappropriate for analyzing multi regime processes although we employ a nonlinear var framework the chosen setup allows the use of largely familiar macroeconometric modeling tools estimating a two regime var we show that the fiscal multiplier varies with the state of the business cycle and the particular specifics of the measure taken for the u s we find for example the fiscal expansion multiplier is much higher in a regime of a low economic activity than in a regime of high activity as we also show it is size dependent

rational addiction and the effect of price on consumption legalization of such substances as marijuana heroin and cocaine surely will reduce the prices of these harmful addictive drugs by the law of the downward sloping demand function their consumption will rise but by how much according to conventional wisdom the consumption of these illegal addictive substances is not responsive to price however conventional wisdom is contradicted by becker and murphy s 1988 theoretical model of rational addiction the becker murphy b m analysis implies that addictive substances are likely to be quite responsive to price in this paper we summarize b m s model of rational addiction and the empirical evidence in support of it we use the theory and evidence to draw highly tentative inferences concerning the effects of legalization of currently banned substances on consumption in the aggregate and for selected groups in the population addictive behavior is usually assumed to involve both reinforcement and tolerance reinforcement means that greater past consumption of addictive goods such as drugs or cigarettes increases the desire for present consumption but tolerance cautions that the utility from a given amount of consumption is lower when past consumption is greater these aspects of addictive behavior imply

do drinkers know when to say when an empirical analysis of drunk driving this paper presents empirical evidence that an individual s decision to drive while drunk is negatively affected by the expected full price of driving drunk the analysis usa a unique data set containing information on self reported drunk driving matched to state level drunk driving policies as well as to state excise taxes on beer these are hypothesized and found to affect drunk driving further we find interesting racial differences but surprisingly small differences by gender in the effect of socioeconomic and policy variables on drunk driving propensities

the potential for using excise taxes to reduce smoking we examine the potential for reducing cigarette smoking through increases in cigarette excise taxes by estimating the price elasticity of demand for cigarettes using information on individual smoking behavior from the 1976 health interview survey we estimate the adult price elasticity of demand for cigarettes to be 0 42 we find that price has its greatest effect on the smoking behavior of young males and that it operates primarily on the decision to smoke rather than via adjustments in the quantity of cigarettes smoked an excise tax increase would discourage smoking by successive cohorts of young adults and those reduced smoking levels would be reflected in aggregate smoking as these cohorts mature

a dynamic model of differential human capital and criminal activity this paper presents a dynamic model of criminal activity individuals are endowed with legal and criminal human capital potential incomes in legal and criminal sectors depend on the level of the relevant human capital the rate of return and random shocks human capital can be enhanced by participating in both sectors legal human capital can also be enhanced through investment human capital is subject to depreciation individuals maximize expected discounted lifetime utility which depends on consumption the model allows analyses of the effects of recessions imprisonment rehabilitation scenarios sanctions and returns to human capital new insights such as hysteresis in criminal behaviour are obtained

aggregate concentration market concentration and diversification studies of business concentration have traditionally focused on two alternative levels of aggregation overall or aggregate concentration is concerned with the extent to which the macro economy or broad sectors thereof is dominated by the largest firms this is commonly measured by the share of aggregate activity accounted for by the largest ioo firms market concentration on the other hand is concerned with the dominance of individual markets by the leading firms therein this is measured variously by the herfindahl or entropy indices concentration ratios etc markets often being defined at the minimum list heading m l h level e g sugar bricks tobacco etc rather surprisingly these two subjects have generated traditions of research which are in the main independent of each other on the theoretical level there appears to exist no formal statement of the relation between aggregate and market concentration and because of this we have no empirical examinations of fairly interesting and obvious questions for example while we know that in the united kingdom both aggregate and market concentration have grown throughout much of the post war period we do not have estimates of what proportion of growth in theformer can be attributed to growth in the latter this paper has two objectives first in section i we establish that a simple formal relation does exist between the two concepts we choose to illustrate that relation using the herfindahl concentration index but it is clear that similar results could be derived using alternative measures in fact the relationship which emerges is particularly convenient for analytical purposes aggregate concentration is found to be proportional to the weighted sum of market concentration in constituent industries where the factor of proportionality has an obvious interpretation as an index of diversification second and having established this it is clear that we have a framework in which a number of interesting theoretical and empirical developments are possible in the present paper we consider one such development this is an empirical application described in section ii which involves using the relationship in conjunction with census size distribution tables to derive estimates of the degree of diversification at various levels of aggregation given the ready availability of census data as opposed to the major data collection exercises usually involved in studies of diversification this raises the real possibility of increasing our knowledge of the industrial distribution and time series development of diversification with comparatively little effort as a worked example in section iii we report some findings on

information shocks and cigarette addiction views from dynamic panels with common structural changes in this article we attempt to evaluate the impact of various information shocks on cigarette consumption in contrast to the existing studies we do not impose any break points a priori we use recently developed techniques for sample splitting in the data on us cigarette demand and find that using a time index as a transition variable can cluster cigarette demand into four distinct regimes in the past four decades a myopic to rational switch in cigarette consumption behaviour was observed in response to various anti smoking information events in particular we find strong evidence in support of the rational addiction model in the 1980s and 1990s moreover in line with the theoretical prediction our estimate of the long run elasticity is twice as large as the short run elasticity our empirical framework should improve policy makers understanding of the dynamics of cigarette consumption in response to various anti smoking campaigns and stress the role of sound policy making in improving smoking con

economic factors affecting the increase in obesity in the united states differential response to price abstract a sharp increase in obesity during the last 15 years in the united states became one of the nation s main public health problems the theory of rational addiction seems to explain human behavior in food consumption leading to obesity reasonably well the interesting thing about our results is that the tax policy normally used to correct various distortions is to serve in this case as the preventive policy additional taxes on future prices of the addictive sweet foods contribute to lower sugar consumption and bmi at present time on the other hand increasing education level is usually considered a preventive type of policy in this case it leads to lowering the levels of the bmi in already overweight and obese population

real wage rigidities and the new keynesian model most central banks perceive a trade off between stabilizing inflation and stabilizing the gap between output and desired output however the standard new keynesian framework implies no such trade off in that framework stabilizing inflation is equivalent to stabilizing the welfare relevant output gap in this paper we argue that this property of the new keynesian framework which we call the divine coincidence is due to a special feature of the model the absence of nontrivial real imperfections we focus on one such real imperfection namely real wage rigidities when the baseline new keynesian model is extended to allow for real wage rigidities the divine coincidence disappears and central banks indeed face a trade off between stabilizing inflation and stabilizing the welfare relevant output gap we show that not only does the extended model have more realistic normative implications but it also has appealing positive properties in particular it provides a natural interpretation for the dynamic inflation unemployment relation found in the data

international narcotics trade foreign aid and enforcement i introduction it is widely accepted that the problems that a country may face as a direct result of narcotics related activities are numerous 1 moreover drug production and trade are intimately tied to other serious international concerns notably the financing of insurgencies and terrorist activities shughart 2006 keefer loayza and soares 2008 intriligator 2010 piazza 2011 a prime example is the involvement of the taliban in afghanistan in the production and trafficking of heroin see blanchard 2009 clemens 2013a 2013b similar issues are observed in colombia and mexico hence the indirect costs of narcotics related activities are also substantial nonetheless the enforcement of prohibitions on the production consumption and movement of narcotics remains among the most controversial issues in international relations not least because the global response has met with somewhat limited success 2 even taking the objective of reducing global consumption of narcotics as given it is unclear which of the available policy tools are likely to be the most effective at meeting the objective the consumption and distribution in narcotics importing countries can be targeted directly although the history of the past one and a half centuries indicates that it is very difficult alternatively and more realistically the supply side can be targeted law enforcement authorities in narcotics exporting countries can be used to eradicate production facilities and to interdict trafficking and alternative production activities can be encouraged by providing technical assistance or by direct subsidization in all cases involving the supply side however it must be recognized that the global production of narcotics is concentrated in developing economies many of these countries lack the enforcement resources to engage effectively against well funded producers and well armed traffickers and their supporting terrorist and rebel groups therefore foreign aid to finance law enforcement activities is essential 3 alternative development policies may also be supported through foreign technical assistance or by directing foreign aid toward alternative production subsidies the effects of these policies on narcotics exporting economies have not however been adequately addressed in the literature our work adds a new dimension to the existing literature on the economics of narcotics 4 we construct a theoretical model that explores the effects of foreign financing of anti narcotics enforcement activities in narcotics producing exporting countries along with other potential policy interventions while previous literature has taken a partial equilibrium approach to analyzing related issues our work differs substantially in adopting general equilibrium methods as martin and symansky 2006 note opium production in afghanistan for example accounted for approximately 27 of economic activity in 2005 2006 given this fact substantial general equilibrium effects must be present and deserve full exploration we focus attention on the consequences of the multitude of severe distortions that narcotics production and enforcement introduce to factor markets we envisage an economy where workers engage in both licit and illicit activities are paid a premium for the risk of incarceration or seizure of their marginal product involved in the latter and a nonproductive law enforcement sector uses real resources to combat illicit activity our work draws on a number of strands of economic theory including tied aid factor market distortions dual economies illicit markets and law enforcement a number of important new results emerge from our analysis foreign aid will increase enforcement activity and will generally lower narcotics production the more market power the narcotics producing country has the less effective foreign aid will be however in fact aid intended for anti narcotics enforcement may effectively be siphoned into the wages of narcotics workers

is there the threshold effect of cigarette price on smoking prevalence a cross country panel data analysis this article shows new cross country evidences by empirically investigating the joint effects of cigarette price levels and joining the world health organization framework convention on tobacco control who fctc on smoking prevalence in 74 countries over the period of 2000 2003 2005 and 2006 we assessed cigarette price elasticity for three national income levels using different databases on cigarette price from the economist intelligence unit eiu demographic and socioeconomic country characteristics from the world bank and adjusted smoking prevalence rates published by various yearly who reports on the global tobacco epidemic from 2000 to 2010 a panel threshold regression was used to capture the nonlinear effects that cigarette prices on smoking prevalence at the three national income levels endogenously determined by estimation our findings supported the evidence that joining the who fctc would have a positive effect on reducing cross country smoking prevalence especially among countries with l

a long march perspective on tobacco use in canada in this paper we present a model of tobacco demand in canada with a view to establishing if price and tax policy on the one hand or educational regulatory and demographic influences on the other have been primarily responsible for the substantial drop in consumption since 1980 we address some methodological and econometric issues that have escaped the attention of some analysts to this point using data for the period 1972 2000 we find that non price developments have had a strong deterrent effect and that the price elasticity of demand is now lower than even the recently obtained low estimates propose these findings have strong public policy content jel classification i12 c13 c22 une perspective de longue haleine sur l usage du tabac au canada dans ce memoire on presente un modele de la demande de tabac au canada en vue d etablir laquelle des deux strategies d une part la politique de prix et d imposition de taxes et d autre part les influences de l education de la reglementation ainsi que les changements demographiques a ete davantage responsable de la chute importante dans la consommation du tabac depuis 1980 le texte examine certains problemes methodologiques et econometriques qui ont jusqu ici echappea l attention des analystes a l aide de donnees pour la periode 1972 2000 on montre que les facteurs qui n ont rien a voir avec le prix ont eu un fort effet dissuasif et que l elasticite de la demande par rapport au prix est maintenant plus faible que les faibles elasticites suggerees par certaines etudes recentes ces resultats ont une grande importance pour la politique publique

the price elasticity of opium in taiwan 1914 1942 abstract between 1895 and 1945 the japanese colonial government virtually eliminated opium use in taiwan by licensing and treating existing users prohibiting sales to others and raising the price we evaluate these policies using a two part model to describe the fraction of the population using opium and consumption among users and the rational addiction model by becker et al 1991 we confirm that opium is addictive and find no evidence supporting the rational addiction hypothesis demand is price elastic with estimated short and long run demand elasticities of 0 48 and 1 38 these results have implications for control of other addictive substances

equilibrium unemployment job flows and inflation dynamics this paper develops a general equilibrium model to explain a set of facts regarding job flows unemployment and inflation dynamics it integrates a theory of equilibrium unemployment into a monetary model with nominal price rigidities the labor market displays matching frictions and endogenous job destruction the model can explain the cyclical behavior of unemployment job creation job destruction and the joint fluctuations of the labor input along both the extensive and the intensive margin conditional on a shock to monetary policy allowing for variation of the labor input at the extensive margin leads to a significantly lower elasticity of marginal costs with respect to output this helps to explain the sluggishness of inflation and the persistence of output after a monetary policy shock

impatience incentives and obesity this paper explores the relationship between time preferences economic incentives and body mass index bmi using data from the 2006 national longitudinal survey of youth we rst show that greater impatience increases bmi and the likelihood of obesity even after controlling for demographic human capital occupational and nancial characteristics as well as risk preference next we provide evidence of an interaction

taxation or regulation looking for a good anti smoking policy abstract this paper investigates the relative ability of two anti smoking policies taxes and regulation in inducing reductions in cigarette consumption and in providing incentives to stop smoking or not to start to our results based on canadian data show that cigarette demand responds to taxes elasticity of 0 28 but not to regulation while the converse is true for the proportion of smokers in the population

worldwide organized cigarette smuggling an empirical analysis this article estimates the economic size and the impact on government revenues of cigarette smuggling worldwide and formulates economic policies that can be used to effectively address the problem first information from various sources are combined and a global map of smuggling routes for cigarettes is described by examining the international cigarette trade records the hub transit countries in six regions of the world are identified second a variable that measures smuggling incentives for cigarettes is defined and computed for 110 countries third a static global demand model for cigarettes that includes the smuggling incentives variable is specified and robustly estimated using the estimation results global price and income elasticities of cigarette demand are obtained as 0 41 and 0 37 respectively it is estimated that in 1999 3 4 of global cigarette consumption was smuggled and 7 4 of tax revenue was lost to smuggling fourth the best policy options are identified to achieve the objec

cigarette smoking and self control this paper empirically studies time inconsistent preferences in the context of cigarette smoking behavior with hyperbolic discounting an individual has time inconsistent preferences which give rise to a lack of self control i e she may perpetually postpone the execution of a plan this implies that a smoker who wants to quit has a demand for control devices e g a smoking ban in public areas or a hike in cigarette excise taxes this paper empirically tests this implication using a sample that is based on survey data from taiwan the estimation results indicate that a smoker s intention to quit has a positive effect on the smoker s support for smoking bans and a cigarette excise tax increase these results lend support to the validity of the time inconsistent preferences in the context of cigarette smoking behavior this casts doubt on the validity of the assumption that individuals have time consistent preferences in becker and murphy s becker g s murphy k m 1988 a theory of rational addiction journal of political economy 96 4 675 700 rational addiction model

new estimates of the optimal tax on alcohol in this paper i use a new data set to estimate the optimal alcohol tax rate as a benchmark the empirical results imply that the optimal tax rate is over 100 percent of the net of tax price however alcohol taxation is a second best solution to the problems associated with alcohol abuse i conclude that the optimal alcohol tax rate would be much lower if punishment for drunk driving were more certain and severe government provision of information about the health consequences of heavy drinking would also remove part of the efficiency rationale for alcohol taxes

cigarette tax avoidance and evasion variation in state cigarette taxes provides incentives for tax avoidance through smuggling legal border crossing to low tax jurisdictions or internet purchasing when taxes rise tax paid sales of cigarettes will decline both because consumption will decrease and because tax avoidance will increase the key innovation of this paper is to compare cigarette sales data to cigarette consumption data from the behavioral risk factor surveillance system brfss i show that after subtracting percent changes in consumption residual percent changes in sales are associated with state cigarette tax changes implying the existence of tax avoidance i estimate that the tax avoidance response to tax changes is at least twice the consumption response and that tax avoidance accounted for up to 9 6 of sales between 1985 and 2001 because of the increase in tax avoidance tax paid sales data understate the level of smoking and overstate the drop in smoking i also find that the level of legal border crossing was very low relative to other forms of tax avoidance if states have strong preferences for smoking control they must pair high cigarette taxes with effective policies to curb smuggling and other forms of tax avoidance or employ alternative policies such as counter advertising and smoking restrictions

the convergence of profits in the long run inter firm and inter industry comparisons this paper considers the extent to which the short run dynamic behavior and long run equilibrium levels of profitability differ among firms within the same industry movements in profits are modeled in terms of firm specific deviations from average industry profits and industry specific deviations from economy wide average returns applied to a sample of 217 large u k firms 1951 77 the results suggest that considerable heterogeneities exist within most industries that is most firms profitability experience differs considerably from those of their closest rivals copyright 1987 by blackwell publishing ltd

can higher cigarette taxes improve birth outcomes abstract this study examines whether higher state cigarette taxes can be used to improve birth outcomes data on the outcomes of interest are taken from the 1989 1992 natality detail files generating a sample of roughly 10 5 million births the results suggest that smoking participation among pregnant women declines and average birth weights rise when excise taxes are increased these results can be used to form an instrumental variables estimate of the impact of smoking on birth weight this estimate is remarkably close to numbers from a random assignment clinical trial the smoking participation price elasticity is estimated to be 0 5

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

horizontal and vertical indirect tax competition theory and some evidence from the usa this paper provides a simple theoretical framework for analysing simultaneous vertical and horizontal competition in excise taxes and estimates equations informed by the theory on a panel of us state and federal excise taxes on cigarettes and gasoline we also examine the role played by smuggling the results are generally consistent with the theory when the characteristics of the markets for the goods are taken into account for neither good do federal excise taxes affect state taxes taxes in neighbouring states have a significant and large effect in the case of cigarettes and a much weaker effect in the case of gasoline we also find that in the setting of cigarette taxes concerns about cross border shopping play a more important role than concerns about smuggling

cigarettes and addiction information simulating the demand effects of the tobacco industry s conspiracy of silence although cigarette manufacturers were aware of the addictive properties of nicotine as early as 1962 the information did not become available to the us public until 1979 when the surgeon general disclosed it us department of health education and welfare 1979 this study simulates the impact this information would have had on the demand for cigarettes had it been released in 1962 the simulations build on past work by fenn et al 2001 who found evidence that the release of addiction information resulted in a structural shift in demand in 1979 in the present study the econometric results from fenn et al 2001 are used to compute simulated time paths for state level per capita consumption under the hypothetical scenario involving the earlier release of the addiction information using these simulated consumption paths the projected reductions in cigarette sales revenue are calculated these dollar figures provide a benchmark against which to judge the compensation amounts that the industry must

estimating price elasticities when there is smuggling the sensitivity of smoking to price in canada a central parameter for evaluating tax policies is the price elasticity of demand for cigarettes but in many countries this parameter is difficult to estimate reliably due to widespread smuggling which significantly biases estimates using legal sales data an excellent example is canada where widespread smuggling in the early 1990s in response to large tax increases biases upwards the response of legal cigarette sales to price we surmount this problem through two approaches excluding the provinces and years where smuggling was greatest and using household level expenditure data on smoking these two approaches yield a tightly estimated elasticity in the range of 0 45 to 0 47 we also show that the sensitivity of smoking to price is much larger among lower income canadians in the context of recent behavioral models of smoking whereby higher taxes reduce unwanted smoking among price sensitive populations this finding suggests that cigarette taxes may not be as regressive as previously suggested finally we show that price increases on cigarettes do not increase and may actually decrease consumption of alcohol as a result smuggling of cigarettes may have raised consumption of alcohol as well

human needs consumerism and welfare adam smith considered consumption the sole end and purpose of all production this presupposes a sound connection between consumption and welfare the consumerist conceptualization of this connection suggests that the amount of consumption equals welfare and the level of production can consequently be an indicator for welfare the limits and problems of production measures are widely accepted yet indicators like gdp remain the focus of mainstream economic theory and policy we trace the origin of this lock in back to the axiom of authentic and stable preferences the suggested alternative stems from literature about human needs in heterodox economics and psychology this literature incorporates the relevance of social aspects and cultural change for welfare it turns out that consumerism can be a threat to well being and welfare rather than a requirement for it

rising cigarette prices and rising obesity coincidence or unintended consequence economists have begun to debate if the rise in cigarette prices in the u s in recent decades has contributed to the nation s rise in obesity reaching conclusions that are surprisingly sensitive to specification i show that allowing for the effect to occur gradually over several years leads to the conclusion that a rise in cigarette prices is actually associated with a long run reduction in body mass index and obesity this result is robust to the different methodologies used in the literature i also provide evidence that indirect effects on exercise and food consumption may explain the counterintuitive result

strategic entry deterrence in analyzing deterrence of large scale entry two classes of entry barriers may be distinguished an innocent entry barrier is unintentionally erected as a side effect of innocent profit maximization in contrast a strategic entry barrier is purposely erected to reduce the possibility of entry two types of innocent barriers may also be distinguished a postentry absolute advantage has the property that if entry did occur the established firm would be at a profit advantage over the entrant examples are superior technology or product design patents and lower input prices a preentry asymmetry advantage arises from the fundamental preentry asymmetry between established firm and potential entrant before the entrant makes his entry decision the established firm has already committed resources this prior existence gives first move advantages the preentry asymmetry is independent of symmetry or asymmetry in the rules the equilibrium concept of the postentry game that might ensue even if the postentry game will be played according to nash cournot or entrant as leader rules the preentry leadership

consumer demand under price uncertainty empirical evidence from the market for cigarettes abstract we develop a demand model for goods that are subject to habit formation we show that consumption plans of forward looking individuals depend on preferences current period prices and ind

the socioeconomic determinants of ill gotten gains within person changes in drug use and illegal earnings generalizing from the sociology of earnings attainment we develop a conceptual model of social embeddedness in conventional and criminal activities to explain illegal earnings among criminal offenders to isolate the effects of time varying factors such as legal earnings drug use and criminal opportunities we use data from the national supported work demonstration project to estimate fixed effects models predicting month to month changes in illegal earnings we find that criminal earnings are sensitive to embeddedness in conforming work and family relationships criminal experience and the perceived risks and rewards of crime moreover heroin and cocaine use creates a strong earnings imperative that is difficult to satisfy in the low wage labor market and offenders earn far more money illegally when they are using these drugs than during periods of abstinence

effect of generic cigarettes on us cigarette demand and smuggling abstract this paper examines the effects of generic cigarettes on overall cigarette demand and smuggling and studies influences of casual and organized smuggling for the united states generic cigarettes lower the price elasticity and diminish the effect of formal smuggling

skiba points in free end time problems abstract since the end of the seventies skiba points have been studied in infinite time optimal control problems with multiple steady states at such a skiba point the decision maker is indifferent between choosing trajectories that approach different steady states this paper extends this theory towards free end time optimal control problems where the decision maker collects a salvage value at the endogenous horizon date in particular besides operating forever the decision maker can choose to stop operations immediately or to operate during a finite time interval after which the decision maker stops and collects a salvage value this paper illustrates the new theory with a firm level capital accumulation problem in which the manager has the option to sell the firm be acquired at any time this situation may be relevant for certain high tech start ups that create intellectual property which may be of value to an acquiring firm and which is hard for an outside firm to tap in other ways e g via licensing

are frequency and intensity of participation decision bearing aspects of consumption an analysis of drinking behaviour analysing quantity consumed per period implies a restriction on decisions about how frequently and intensely to consume this quantity hypothesis is rejected based on estimated equations for the frequency and intensity of spirit consumption consequently a simultaneous equation system for frequency and intensity is estimated as they enter the budget constraint as a multiplicative term income and education levels are found to be negatively related to intensity but not frequency this may reflect differences in the shadow prices of frequency and intensity for different socioeconomic groups or heterogeneous preferences for intoxication and health distinguishing between these aspects of drinking patterns is important for the evaluation of the price responsiveness of harmful drinking restrictions on availability and the causes of inequalities in health

excise tax avoidance the case of state cigarette taxes we conduct an applied welfare economics analysis of cigarette tax avoidance we develop an extension of the standard formula for the optimal pigouvian corrective tax to incorporate the possibility that consumers avoid the tax by making purchases in nearby lower tax jurisdictions to provide a key parameter for our formula we estimate a structural endogenous switching regression model of border crossing and cigarette prices in illustrative calculations we find that for many states after taking into account tax avoidance the optimal tax is at least 20 smaller than the standard pigouvian tax that simply internalizes external costs our empirical estimate that tax avoidance strongly responds to the price differential is the main reason for this result we also use our results to examine the benefits of replacing avoidable state excise taxes with a harder to avoid federal excise tax on cigarettes

the macroeconomics of labor and credit market imperfections labour market frictions are not the only possible source of high unemployment credit market imperfections driven by microeconomic frictions and influenced by macroeconomic factors could also be to blame to develop this idea in a simple and tractable macroeconomic model we treat credit and labour market imperfections in a symmetrical way accordingly we introduce specificity in credit relationships and assume that credit to potential entrepreneurs is rationed due to endogenous search frictions in the spirit of diamond 1990 these imperfections mirror job search frictions in the labour market we study the determination of equilibrium unemployment in the presence of credit market frictions both with exogenous and endogenous wages we explore a number of possible extensions endogenous destruction monetary policy and the short run effects of financial liberalization

an embarrassment of riches confronting omitted variable bias and multiscale capitalization in hedonic price models abstract many researchers have addressed concerns of omitted variable bias in hedonic price models through the use of spatial fixed effects we argue that this approach does not consider the biases introduced by effects that overlap the zone of capitalization for nonmarket goods we show this bias can dominate the usual omitted variable bias using data on developer provided open space we control for multiscale capitalization and omitted variables simultaneously by extending the hausman taylor estimator where the panel component of the estimator is defined over repeated transactions within neighborhoods rather than the traditional definition following a unique cross sectional unit through time

a nearly global look at the dynamics of youth smoking initiation and cessation the role of cigarette prices this study investigates the role of cigarette prices on smoking initiation and cessation among youth in a sample of eight primarily non western low middle and high income countries with a particular focus on a subsample of 40 low and middle income countries lmics using split population duration models on longitudinally transformed individual data from the global youth tobacco survey gyts the average impact of cigarette prices in the presence of unobserved country heterogeneity and shifting cultural norms within countries is identified by the variation of cigarette prices within countries over time price increases are found to effectively reduce initiation in early youth and girls are considerably more responsive than boys the price elasticity of initiation in lmics is 0 82 for the combined gender analysis 0 46 for boys only and 1 5 for girls only there is some indication that youths in developing countries may be slightly less responsive to price changes than in high income countries no

efficient excise taxation the evidence from cigarettes we develop a model in which optimizing policy makers in adjacent government jurisdictions levy excise taxes on a commodity that has a unique point of production from which all shipments emanate from this model we derive an unusually specific predicted geographical pattern of those excise taxes in which these taxes rise at a decreasing rate as one moves outward from the point of production we compare these predictions to the observed pattern of cigarette taxes imposed by state governments in the united states and find the data to be fully consistent with our model among these predictions is the existence of a ripple effect which reduces taxes in many other jurisdictions due to low taxes at the point of production we estimate that these induced tax reductions in other states save cigarette producers and consumers a minimum of 110 million per year

habit persistence heterogeneous tastes and imperfect competition abstract we examine the dynamic behavior of consumption and price in a setting where imperfectly competitive producers face consumers with various intensities of rational habit persistence we establish that steady state consumption and its persistence rate are lower under time consistent monopoly than under either competition or monopoly commitment under both competition and monopoly commitment the steady state level and the transient path of consumption are unaffected by the relative mix of consumer types in the consistent case both the persistence rate and steady state consumption decrease as the proportion of habitual consumers increases

do adolescents with emotional or behavioral problems respond to cigarette prices adolescents with mental health problems have much higher rates of smoking than those without such problems although a large body of evidence suggests that higher cigarette prices reduce smoking prevalence and the quantity smoked little is known about the interaction between mental health or behavioral problems and tobacco consumption in the general population or among adolescents using a national representative sample of adolescents from the national longitudinal study of adolescent health and employing validated psychiatric measures of emotional distress and behavioral problems we estimate the price elasticity of cigarette demand for adolescents who have behavioral or emotional problems the results indicate that these adolescents are at least as responsive to cigarette prices as adolescents with no emotional or behavioral problems

the effects of excise taxes and regulations on cigarette smoking abstract we estimate a generalized linear model to examine adult and teenage cigarette demand our analysis focuses on the extent to which exice taxes and regulations restricting smoking in public places affect cigarette consumption the adult results indicate that the price elasticity of demand is unstable over time ranging from 0 06 in 1970 to 0 23 in 1985 these estimates are lower than most found in previous studies the teenage price elasticity does not differ statistically from the estimates for adults additionally regulations restricting smoking in public places have a significant effect on both adult and teenage cigarette demand

taxation smuggling and demand for cigarettes in canada evidence from time series data abstract this study analyzes canadian cigarette consumption and taxation between 1980 and 1994 a period in which there have been large price rises and declines and a dramatic increase in the consumption of contraband tobacco products we examine elasticities of legal cigarette sales and total sales including contraband with respect to the price of legal cigarettes and various other factors the growth of the contraband market since 1987 appears to have created two classes of cigarette taxed and untaxed with responses to changes in the legal price that are respectively higher and lower than was previously the case the sensitivity of total cigarette sales to the taxation instrument is much lower than it would appear from sales of taxed cigarettes alone

debt deflation financial market stress and regime change evidence from europe using mrvar the economic meltdown since 2008 9 has created disinflation and even deflation in some countries in the euro area in a period with large debt overhang creating the condition for a continuing financial market stress in the euro area as disinflation and deflation push up the real interest rate while growth and income declines the leveraging problem becomes more severe and the economy risks shifting into a regime with high insolvency risk high financial stress rising credit spreads possibly accompanied by strong adverse macroeconomic feedback loops investigating the consequences of those magnifying feedback loops given the debt deflation we demonstrate the possibility of unstable dynamics and downward spirals in the presence of regime dependent macro feedback loops using a theoretical model with decentralized matching mechanisms on both labor and financial markets to explore the amplifying linkages between deflation output labor and financial markets we employ a new solution procedure called nmpc to solve our models variants for out of steady state dynamics we empirically explore deflationary trends in europe and employ a global var gvar model for a large euro area macro data set to estimate the impact of deflation on output moreover we use a four variable multi regime var mrvar model with regime dependent irs to study deflationary as well as well as the financial risk drivers in a mrvar setting new measures for financial risk drivers are employed and multi regime irs for output inflation rates interest rates and financial stress are explored we also study regime changes in central macro relationships such as regime change in the credit output link the phillips curve and in okun s law

labour supply with habit formation abstract in a model with habit forming labour supply we show that standard myopic utility maximisation of a person weakly addicted to a harmful habit is consistent with empirical results on labour supply

kalman filter and the demand for cigarettes kalman filter estimates of price income and advertising elasticities are presented an analysis of structural change in the demand for cigarettes in the us for the period 1929 86 is made estimated price and income elasticities are generally smaller and the advertising elasticity larger than estimates previously found cigarette demand is inelastic with respect to price and income and advertising elasticity is statistically insignificant for the most part furthermore both income and price elasticities decline over time while advertising elasticity tends to rise four time periods where structural change has occurred are identified the health scare reports and the fairness doctrine act have a significant impact on per capita cigarette consumption

firm behavior in a market with addiction the case of cigarettes abstract this paper investigates firm behavior when demand is linked over time among other things the theoretical section shows that if firms are forward looking anticipated future events can affect current consumption of an addictive good even when consumers are completely myopic the empirical part of the paper reports a simulation of the 1983 federal cigarette excise tax increase both myopic and rational models of consumer demand give roughly the same predictions for per capita consumption but neither model does very well predicting actual consumption the problem appears to lie in the prediction of price suggesting that supply considerations are important

business cycles and labor market search the quantitative implications of labor market search for economic fluctuations are evaluated in the context of a real business cycle model incorporating labor market search into the model is found to improve its empirical performance along several dimensions in particular hours now fluctuate substantially more than wages and the contemporaneous correlation between hours and productivity falls in addition the model replicates the observation that output growth displays positive autocorrelation at short horizons overall the empirical results suggest that the labor market search environment embodies a quantitatively important propagation mechanism copyright 1996 by american economic association

cigarette taxes and illicit trade in europe cigarettes are highly taxed in europe but at higher prices some consumers substitute more toward illicit cigarettes the illicit retail trade in cigarettes irtc includes counterfeit untaxed and smuggled cigarettes some existing literature includes claims that taxes are not an important determinant of irtc using data from the european union we find the opposite raising prices leads to substantial increases in irtc a 1 increase in tax pack is expected to increase illicit market share by 5 to 12 percentage points and increase illicit cigarette sales by 29 to 95 the results are robust to alternative specifications and data jel i18 h26 k42

demand for cigarettes in the united states effects of prices in bordering states and contiguity with mexico and canada based on a cross section of us states for 2004 this article estimates a demand function for cigarettes after including a proxy for prices in the bordering states and simple proxies for contiguity with mexico and canada and for being a major tobacco producer one major point seems to be that the negative elasticity for within state price is similar in magnitude to the positive elasticity for the lowest price in bordering states several additional points also seem noteworthy first having a border with mexico lowers sales in the state sizably second the share of hispanic latino population in the state also lowers sales significantly third contiguity with canada appears to have no significant effect fourth partial impact of the state being a major tobacco producer appears minor even though consumption in these states is considerably higher fifth education shows the expected negative association with cigarette consumption but its statistical significance is low last income carries a weak negat

why do people drink tests of the rational addiction model the rational addiction ra model applied to alcoho consumption is tested using 1983 us health interview survey data the ra model yields refutable hypotheses concerning effects of current past and future prices past and future consumption time preference and marginal utility of wealth on addictive good consumption the estimations provide relatively strong support for the ra model past and present consumption had strong positive relationship with current consumption coefficients on past present and future money prices and fines for first oflence drunk driving as a form of price for alcohol consumption were significant and of the predical sign

is the rational addiction model inherently impossible to estimate the rational addiction ra model is increasingly often estimated using individual level panel data with mixed results in particular with regard to the implied rate of time discount this paper suggests that the odd values of the rate of discount frequently found in the literature may in fact be a consequence of the saddle point dynamics associated with individual level inter temporal optimization problems we report the results of monte carlo experiments estimating ra type difference equations that seem to suggest the possibility that the presence of both a stable and an unstable root in the dynamic process may create serious problems for the estimation of ra equations

do markets differ much this essay reports the results of a crosssection study of differences in accounting profitability that sheds light on some basic controversies in industrial economics most previous cross section studies in this field have been concerned with testing hypotheses about structural coefficients in models meant to apply to essentially all markets as we have learned more about the difficulties of constructing such general models and of performing tests on their structural parameters properly structural cross section analysis has fallen out of fashion in contrast to most of the cross section literature the analysis reported here is fundamentally descriptive it does not attempt directly to estimate or to test hypotheses about structural parameters i hope to show by example that one can perform illuminating analysis of cross section data without a host of controversial maintained hypotheses cross section data can yield interesting stylized facts to guide both general theorizing and empirical analysis of specific industries even if they cannot easily support full blown structural estimation one can view the sort of search for stylized facts conducted here as either a replacement for or an input to interindustry structural estimation depending on one s feeling about the long run potential of that research approach this study also departs from much of the cross section literature by being fundamentally concerned with the importance of various effects not just with coefficient signs and t statistics in particular this essay provides estimates of the relative importance of firm market and market share differences in the determination of business unit divisional profitability in u s manufacturing using 1975 data from the line of business program of the u s federal trade commission ftc i find support neither for the existence of firm effects nor for the importance of market share effects moreover while industry effects apparently exist and are important they appear to be negatively correlated with seller concentration in these data section i relates firm market and share effects to current issues and controversies in industrial economics and thus supplies the motivation for our empirical analysis the remainder of the essay treats the data and

cigarette tax economic welfare and social class patterns of smoking the divergence in social class patterns of smoking in the last two decades means that now only half as many professional men social class 1 smoke as do unskilled working men social class 5 and mortality from smoking related disease is becoming predominantly a lower social class problem the changes in smoking patterns have been attributed to the greater influence of antismoking publicity in the higher social classes while the influence on social class smoking of other factors such as taxation or advertising has been largely unknown this study presents a method for assessing the impact of cigarette tax on members of different social classes responses to tax changes over 17 years are analysed and a method developed for estimating the effects of price changes on tax paid expenditure on cigarettes and economic welfare the results suggest that smokers of lower social class may be more responsive to tax changes and that cigarette tax increases may not be regressive cigarette prices in the uk are still some 25 below the 1948 real price level the downward drift in prices may have effectively increased the smoking levels of lower socioeconomic groups relative to social classes 1 and 2 and may have been a major factor in the divergence in social class smoking i smoking profiles the united kingdom stin experiences high smoking levels about 3 4 of all consumer expenditure is spent on tobacco central statistical office 1982 and this represents the highest per capita consumption in the european economic community commission of the european communities 1982 it is by no means evenly spread throughout the population but is mostly concentrated in the lower social class groups opcs 1982 before the anti smoking health publicity of the early 19605 there was very little difference between the smoking habits of different social classes in the uk around 60 of men and 45 of women in each class smoked cigarettes fig 1 since that time the pattern of smoking has been characterized by a widening divergence in smoking between members of different social classes an overall increase in the number of cigarettes smoked by the average smoker and a narrowing of the difference in women and men s smoking habits by 198549 0 of unskilled working men sc5 smoked cigarettes while only

a dynamic model of rational addiction evaluating cigarette taxes addiction creates an intertemporal link between a consumer s past and present decisions altering their responsiveness to price changes relative to nonaddictive products we construct a dynamic model of rational addiction and endogenous consumption to investigate how consumers respond to policy interventions that aim to reduce purchases of cigarettes we find that on average the category elasticity is about 35 higher when the model correctly accounts for addiction however some policies spur substitution from more expensive single packs to less expensive cartons of cigarettes resulting in higher overall consumption for some consumers

the effect of medicaid expansion on crime reduction evidence from hifa waiver expansions abstract substance use figures prominently in criminal behavior as such expanding public insurance and improving access to substance use disorder sud treatment can potentially reduce substance use and reduce crime we examine the crime reduction effect of medicaid expansions through the health insurance flexibility and accountability hifa waivers we find that hifa waiver expansion led to a sizeable reduction in the rates of robbery aggravated assault and larceny theft we also show that much of the crime reduction effect likely occurred through increasing sud treatment rate and reducing substance use prevalence the implied benefit cost ratio estimate of increased treatment on reducing crime ranges from 1 8 to 3 2

taxation regulation and addiction a demand function for cigarettes based on time series evidence this work analyzes the effects of prices taxes income and anti smoking regulations on the consumption of cigarettes in california a 25 cent per pack state tax increase in 1989 enhances the usefulness of this exercise analysis is based on monthly time series data for 1980 through 1990 results show a price elasticity of demand for cigarettes in the short run of 0 3 to 0 5 at mean data values and 0 5 to 0 6 in the long run we find at least some support for two further hypotheses that antismoking regulations reduce cigarette consumption and that consumers behave consistently with the model of rational addiction

an empirical analysis of milk addiction we show the estimable rational addiction model tends to yield spurious evidence in favor of the rational addiction hypothesis when aggregate data are used direct application of the canonical model yields results seemingly indicative that non addictive commodities such as milk eggs and oranges are rationally addictive monte carlo simulation demonstrates that such results are likely to obtain whenever the commodity under scrutiny exhibits high serial correlation or when even a small amount of the variation in prices is endogenous or when overidentified instrumental variables estimators are used or when commonly imposed restrictions are employed we conclude that time series data will often be insufficient to differentiate rational addiction from serial correlation in the consumption series

excise gap and price in the italian cigarette industry we provide evidence that tax shifts in the italian cigarette industry are not homogeneous across price categories and are associated with differences in the excise structure we take the gap betwee