what u s data should be used to measure the price elasticity of demand for alcohol this paper examines how estimates of the price elasticity of demand for beer vary with the choice of alcohol price series examined our most important finding is that the commonly used accra price data are unlikely to reliably indicate alcohol demand elasticities estimates obtained from this source vary drastically and unpredictably as an alternative researchers often use beer taxes to proxy for alcohol prices while the estimated beer taxes elasticities are more stable there are several problems with using taxes including difficulties in accounting for cross price effects we believe that the most useful estimates reported in this paper are obtained using annual uniform product code upc barcode scanner data on grocery store alcohol prices these estimates suggest relatively low demand elasticity probably around 0 3 with evidence that the elasticities are considerably overstated in models that control for beer but not wine or spirits prices

alcohol prices consumption and traffic fatalities we examine the relationships among alcohol prices consumption and traffic fatalities using data across u s states from 1982 to 2000 some previous studies have found large negative associations between alcohol taxes and fatalities however commonly used price data suggest little or no connection between alcohol prices and fatalities these apparently conflicting findings may result from measurement error and or endogeneity in the price data which biases ordinary least squares estimators toward a finding of no price effects using alcohol taxes as instrumental variables fatali ties are found to be negatively related to prices in addition alcohol consumption is strongly posi tively related to fatalities however biases may still remain because taxes are not entirely suitable as instruments

individual heterogeneity and censoring in panel data estimates of tobacco expenditure a panel of households is used to test the rational addiction model of becker et al 1994 these data raise problems of measurement errors censoring and unobservable heterogeneity we use sample separation information to exclude those households who never purchase tobacco to deal with the remaining zeros we compare specifications based on infrequency of purchase and on censoring gmm and system gmm are used to deal with errors in variables and unobservable heterogeneity within groups two step within groups three step gmm and minimum distance methods are used to allow for censoring there is evidence that the rational addiction specification is sensitive to unobservable heterogeneity and censoring copyright 2002 john wiley sons ltd

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

addiction and discounting abstract in 1988 becker and murphy becker g s murphy k m 1988 a theory of rational addiction journal of political economy 96 675 700 launched a theory in which they proposed that the perspective of rational decision making could be applied also to cases of addictive behaviour this paper discusses the theory s assumptions of interpersonal variation and stability in time preferences on the basis of estimates derived from three groups of people with different consumption levels of illegal intoxicants we find that active injectors of heroin and amphetamine have a higher discount rate than a group reporting that they have never used the substances of greater interest though not in accordance with becker and murphy s assumption of stability we also find that the discount rate among active and former users differs significantly these findings raise the question of whether a high time preference rate leads to addiction or whether the onset of an addiction itself alters people s inter temporal equilibrium

is addiction rational theory and evidence this paper makes two contributions to the modeling of addiction first we provide new and convincing evidence that smokers are forward looking in their smoking decisions using state excise tax increases that have been legislatively enacted but are not yet effective and monthly data on consumption second we recognize the strong evidence that preferences with respect to smoking are time inconsistent with individuals both not recognizing the true dife culty of quitting and searching for self control devices to help them quit we develop a new model of addictive behavior that takes as its starting point the standard rational addiction model but incorporates time inconsistent preferences this model also exhibits forward looking behavior but it has strikingly different normative implications in this case optimal government policy should depend not only on the externalities that smokers impose on others but also on the internalities imposed by smokers on themselves we estimate that the optimal tax per pack of cigarettes should be at least one dollar higher under our formulation than in the rational addiction case

an empirical analysis of alcohol addiction results from the monitoring the future panels in a panel of young adults we find that alcohol consumption is addictive in the sense that increases in past or future consumption cause current consumption to rise the positive and significant future consumption effect is consistent with the hypothesis of rational addiction the long run price elasticity is approximately 60 larger than the short run price elasticity and twice as large as the elasticity that ignores addiction thus a tax hike policy to curtail consumption or abuse may not have a favorable cost benefit ratio unless it is based on the long run price elasticity jel 110

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

illicit drug use among arrestees prices and policy abstract prior studies by relying on nationally representative surveys have overlooked the important fact that use of addictive substances is not uniformly distributed subgroups of hardcore users account for most of the drug consumption this study employs the arrestee drug abuse monitoring system to analyze the demand for cocaine and heroin by urban arrestees employing objective indicators of use based on urinalysis the data are repeated city cross sections and panel data methodology is employed to account for endogeneity cocaine and heroin prices have a negative effect on the probability of use even among this group of heavy users results indicate that subjective self reported measures of participation are likely to be under reported which may impart bias to estimates of the price elasticity the own price cocaine participation elasticity is about 0 15 and the own price heroin participation elasticity is about 0 10 for arrestees this contemporaneous elasticity understates the full effect and the long run price elasticity is about twice the magnitude the magnitude of the price response is substantially smaller relative to the estimates in the prior literature and calculations suggest that further enforcement and interdiction driven increases in drug prices may not be cost effective

lobbying and asymmetric information informational lobbying the use by interest groups of their alleged expertise or private information on matters of importance for policymakers in an attempt to persuade them to implement particular policies is often regarded as an important means of influence this paper analyzes this phenomenon in a game setting on the one hand the interest group is assumed to have private information which is relevant to the policymaker whilst on the other hand the policymaker is assumed to be fully aware of the strategic incentives of the interest group to mis report or conceal its private information

i ll never forget my first cigarette a revealed preference analysis of the habits as durables model we provide a revealed preference analysis of the habits as durables model this approach avoids the need to impose a functional form on the underlying utility function we show that our characterization is testable by means of linear programming methods and we demonstrate its practical usefulness by means of an application to cigarette consumption using a spanish household consumption data set we find that the habits as durables model has better empirical fit in terms of predictive success compared to the short memory habits and life cycle models

tax competition uniform assessment and the benefit principle abstract in previous discussions it has been argued that tax competition between local governments results in a tax burden on business that is less than the cost of public services for business and in suboptimal levels of public expenditures for residents however this conclusion has never been substantiated by a full theoretical treatment here a theoretical model of tax competition is developed between metropolitan areas with labor perfectly immobile and two local public goods one for residents and one for business for plausible parameter values numerical solutions of the optimality conditions are computed by means of a nonlinear programming algorithm

political quid pro quo agreements an experimental study we experimentally study the common wisdom that money buys political influence in the game one special interest i e a corporate firm has the opportunity to influence redistributive tax policies in her favor by transferring money to two competing candidates the success of the investment depends on whether or not the candidates are willing and able to collude on low tax policies that do not harm their relative chances in the elections in the experiment successful political influence never materializes when the firm and candidates interact just once by contrast it yields substantially lower redistribution in about 40 of societies with finitely repeated encounters however investments are not always profitable and profit sharing between the firm and candidates depends on prominent equity norms our experimental results shed new light on the complex process of buying political influence in everyday politics and help explain why only relatively few firms do actually attempt to influence policymaking

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

rational exuberance at the mall addiction to carrying a credit card balance the becker murphy model of rational addiction is tested with new zealand credit card debt data the results clearly favour the rational addiction model over the myopic backward looking model the estimated short run and long run price elasticities are 0 58 and 2 32 respectively and the estimated rate of time preference is 6 7 per quarter

are alcohol tax hikes fully passed through to prices evidence from alaska on 1 october 2002 the state of alaska increased taxes on malt beverages from 0 35 per gallon to 1 07 per gallon increased taxes on wine from 0 85 per gallon to 2 50 per gallon and increased taxes on distilled spirits from 5 60 per gallon to 12 80 per gallon the net effect is that the tax on a standard serving rose from about 3 cents for beer 2 cents for wine and 4 cents for spirits to a uniform tax of 10 cents per standard serving of each type of alcohol beverage this paper uses primary data on alcoholic beverage prices in alaska to study a very basic question what was the impact of the tax hikes on prices an alcohol tax hike is often viewed as a public health policy tool to discourage excessive alcohol consumption and alcohol related problems such as drunk driving the impact of a tax hike on alcoholic beverage prices is a key link in the chain of the causality from the tax to public health economic theory and previous empirical studies mainly of taxes on goods other than alcoholic beverages do not provide very much guidance on what to expect following a tax hike it is an empirical question to answer the question i conducted telephone surveys just before and a year after the tax hike of on premise and off premise alcohol retail establishments across alaska

native american obesity an economic model of the thrifty gene theory native american obesity is hypothesized to result from three potential causes 1 a genetic predisposition or the thrifty gene 2 a rational addiction to nutrients and 3 dietary adjustment costs these hypotheses are tested using a two stage household production approach and scanner data from a panel of native and non native supermarkets nutrient intake for both groups is strongly influenced by adjustment costs native americans tend to place higher implicit valuations on protein relative to fats and carbohydrates compared to non natives consequently reductions in real carbohydrate prices over time may be a cause of high incidence of native american obesity

alcohol taxes and labor market outcomes abstract we present reduced form estimates of the effect of alcohol taxes on employment weekly work hours and wages the reduced form estimates are meaningful in two ways first they provide estimates of the effect of an important public policy tool alcohol taxes and second they can be used to evaluate hypotheses about the structural effects of alcohol use on labor market outcomes estimates indicate that there is a weak and indeterminate relationship between alcohol taxes and labor market outcomes this implies that alcohol use does not adversely affect labor market outcomes and is inconsistent with findings from previous studies

the emergence of cooperation among egoists this article investigates the conditions under which cooperation will emerge in a world of egoists without central authority this problem plays an important role in such diverse fields as political philosophy international politics and economic and social exchange the problem is formalized as an iterated prisoner s dilemma with pairwise interaction among a population of individuals results from three approaches are reported the tournament approach the ecological approach and the evolutionary approach the evolutionary approach is the most general since all possible strategies can be taken into account a series of theorems is presented which show 1 the conditions under which no strategy can do any better than the population average if the others are using the reciprocal cooperation strategy of tit for tat 2 the necessary and sufficient conditions for a strategy to be collectively stable and 3 how cooperation can emerge from a small cluster of discriminating individuals even when everyone else is using a strategy of unconditional defection

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

addiction as a market failure using rational addiction results to justify tobacco regulation abstract tobacco regulation efforts have been criticized by some academic economists for failing to provide adequate welfare analytic justification this paper attempts to address these criticisms unlike previous research that has discussed second hand smoke and health care financing externalities this paper develops the logic for identifying the much larger market failures attributable to the failure of smokers to fully internalize the costs of their addictive behavior the focus is on teen addiction as a form of intrapersonal externality and observed adult consumption behavior consistent with partial myopia the importance of peer effects in the consideration of welfare impacts is also emphasized

redistribution and market efficiency an experimental study abstract we study the interaction between competitive markets and income redistribution that reallocates unequal pre tax market incomes away from the rich to the poor majority in one setup participants earn their income by trading in a double auction da with exogenous zero or full redistribution in another setup after trading they vote on redistributive tax policies in a majoritarian election with two competing candidates this results in virtually full redistribution even when participants have the opportunity to influence taxes by transferring money to the candidates we find that the high redistribution reduces trading efficiency but not as much as predicted if market participants trade randomly this is because rather than capitulating to the much lower trading incentives many participants respond to redistribution by asking and bidding more conservatively in the da and in this way help to prevent further efficiency losses

does traditional price policy work for achieving low smoking rate empirical and theoretical evaluation based on the united states aggregate data in the united states smoking has been strictly restricted by both federal and state governments almost all the policies have imposed high tax on cigarettes for decreasing the number of smokers i

a dynamic demand model for liquor the case for pooling this paper estimates a dynamic demand model for liquor in the united states using panel data from 43 states because of taste changes over time and between states in liquor consumption purely time series or cross sectional studies do not elicit reliable price elasticity estimates this study makes the case for pooling and shows how one can control for individual state effects and endogeneity of the regressors using estimators suited for a dynamic demand model our results indicate that the long run price elasticity is in the 0 7 range the findings also support strong habit persistence a small positive income elasticity and very weak evidence of bootlegging from adjoining states the magnitude of the long run price effect suggests that sin taxes can serve not only as an important income source but also as a significant deterrent effect copyright 1995 by mit press

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

the demand for cocaine by young adults a rational addiction approach abstract this paper applies the rational addiction model to the demand for cocaine by young adults in the monitoring the future panel the price of cocaine is added to this survey from the drug enforcement administration s system to retrieve information from drug evidence results suggest that annual participation and frequency of use given participation are negatively related to the price of cocaine in addition current participation frequency is positively related to past and future participation frequency the long run price elasticity of total consumption participation multiplied by frequency given participation of 1 35 is substantial

legislators and interest groups how unorganized interests get represented this paper derives a supply price for public policy using a constrained maximization model in the model three sets of agents each have preferences over outcomes organized interest groups offer campaign contributions to improve their own wealth voters offer votes to obtain outcomes closer to their most preferred outcomes and legislators seek both campaign contributions and votes to obtain reelection a given legislator s supply price for policy is shown to depend on the productivity of his effort as determined by committee assignments priority and ability and by the preferences of his unorganized constituency in the home district two extreme assumptions about the effectiveness of campaign spending in eliciting votes are used to illustrate the comparative statics properties of the model the prediction of the model is that interest groups will in general seek out legislators whose voters are indifferent to the policy the interest group seeks thus voters who do have preferences over policy are in effect represented even though they are not organized

pseudo panel data estimation technique and rational addiction model an analysis of cigarette alcohol and coffee demands we use a pseudo panel data approach to analyze the relationship between the consumptions of cigarettes alcohol and coffee in a rational addiction framework we find that while cigarette and coffee demands fit well with the rational addiction model alcohol demand conforms to a model with inventory effects the results suggest that alcohol consumption increases the marginal utility derived from consumption of cigarettes increasing alcohol prices would decrease not only the consumption of alcohol but also the consumption of cigarettes on the other hand increasing cigarette prices do not have the same effect on consumption of alcohol the cross price elasticity of coffee with respect to cigarette price is positive and significant which suggests that coffee substitutes for cigarettes when cigarette prices increase the cross price elasticity of alcohol with respect to coffee price is found to be negative and significant on the other hand morishima elasticities of substitution indicate that cigarette alcohol and coffee substitute each other along the indifference curve when relative prices change

campaign contributions and congressional voting does the timing of contributions matter theoretical and empirical studies do not address whether campaign contributions from more than one election cycle are important for congressional voting behavior further they do not address whether campaign contributions from different periods have different effects on legislative voting behavior this paper analyzes the cumulative effect of campaign contributions over two time periods moreover this paper studies the importance of the timing of contributions for legislative voting behavior ten roll call votes on price supports and quotas for various farm commodities in 1981 and 1985 are analyzed most of the estimated contribution coefficients are statistically significant the results show that without campaign contributions farm interest would have lost in five of the seven votes that were won moreover contributions that were given at approximately the same time as the vote have a larger impact on voting behavior than contributions that the legislator received one or two years prior to the vote copyright 1995 by mit press

interest group competition and the organization of congress theory and evidence from financial services political action committees we develop a positive theory of how interest group competition shapes the organization of congress and use it to explain campaign contribution patterns in financial services since interest groups cannot enforce fee for service contracts with legislators legislators have an incentive to create specialized standing committees which foster repeated dealing between interests and committee members the resulting reputational equilibrium supports high contributions and high legislative effort for the interests contribution patterns by competing interests in the congressional battle over whether banks can enter new businesses support the theory which also has implications for term limits and campaign reform

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

the demand for alcohol the differential response to price although several studies indicate that drinking is responsive to price little work has focused on whether prices have a differential effect on light moderate or heavy drinking this study examines the price responsiveness of the demand for alcohol whether heavy drinkers are less sensitive to price than light or moderate drinkers the study uses data on alcohol consumption on the 1983 national health interview survey the results indicate that both light and heavy drinkers are much less price elastic than moderate drinkers further we cannot reject the hypothesis that the very heaviest drinkers have perfectly price inelastic demands