a search theoretic model of the retail market for illicit drugs a search theoretic model of the retail market for illegal drugs is developed trade occurs in bilateral potentially long lived matches between sellers and buyers buyers incur search costs when experimenting with a new seller moral hazard is present because buyers learn purity only after a trade is made this model is consistent with some new stylized facts about the drugs market and it is informative for policy design the effectiveness of different enforcement strategies is evaluated including some novel ones that leverage the moral hazard present in the market copyright oxford university press

economics and the international trade commission negotiated during the 1980s and the u s semiconductor agreement with japan because the u s antidumping and antisubsidy laws are now one of the most important means used to restrict imports the administration of these laws has come under considerable scrutiny many observers are concerned that these laws are being administered in a way which favors u s industries in this paper i attempt to address some of these concerns by determining the extent to which the administration of the u s unfair trade laws is based on the economic criteria specified in the unfair trade legislation in particular this study examines the importance of economic criteria in the antidumping and antisubsidy decisions of the international trade commission itc the itc is one of the most important agencies responsible for administering the u s unfair trade laws and its role extends beyond these laws into other areas including the escape clause the administrative role of the itc in unfair trade cases is to determine whether unfairly traded imports are a cause of material injury to a domestic industry many other authors have examined the basis for itc decisions the results of baldwin 3 and goldstein and lenway 8 provide support for the hypothesis that the itc uses at least some of the legislated economic criteria appropriately both studies examine the escape clause decisions of the itc and find that industries with declining profitability are more likely to receive favorable itc decisions goldstein and lenway 8 also find that the itc is immune to congressional pressures for protection both studies however focus solely on escape clause decisions which represent only a small fraction of itc decisions and do not involve allegations of unfair trade escape clause actions are also different from other itc decisions in that the president must ultimately decide whether relief is warranted

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

is protection for sale evidence on the grossman helpman theory of endogenous protection grossman and helpman 1994 present a theory of endogenous protection by explicitly modeling government industry interactions for which mere black box models previously existed they obtain a ramsey pricing type solution to the provision of protection which emphasizes the role of inverse import penetration ratios and import elasticities on the lobbying side the model makes predictions about lobbying competition and lobbying spending according to deadweight costs from protection the model not only makes for richer theory in terms of rigor and elegance but its predictions are directly testable whether the grossman helman model stands up to real world data is investigated in this paper predictions from both the protection side and lobbying side are tested using cross sectional u s nontariff barrier data we also compare the second generation grossman helpman model with a more traditional specification our results call for serious consideration of this model in the political economy literature

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

price and enforcement effects on cocaine and marijuana demand this article estimates equations for past year cocaine and marijuana use among adult and juvenile respondents of the 1990 97 national household surveys on drug abuse unlike most previous studies we control for the monetary price of marijuana probabilities of arrest for marijuana and cocaine possession and state fixed effects results indicate that cocaine prices are inversely related to adult cocaine and marijuana demand but are unrelated to juvenile drug demand marijuana price effects are always statistically insignificant estimated price effects are inflated when state effects are omitted and increases in each arrest probability diminish both types of drug use jel k42 118 d12 i introduction the responsiveness of cocaine and marijuana demand to changes in their prices is a key determinant of the effectiveness of illegal drug enforcement policy by harassing sellers and seizing drugs enforcement attempts to reduce the consumption of illegal drugs by restricting their supply and thereby raising their prices even if enforcement is able to increase drug prices its success in reducing illegal drug use depends on the elasticity of drug demand with respect to drug prices reciprocally unless this elasticity is close to zero legalization of cocaine and marijuana would likely increase their consumption substantially by drastically reducing their prices a complementary goal of enforcing cocaine and marijuana possession violations is to reduce their demand at prevailing prices this occurs through both incarceration of drug users who will no longer be able to purchase drugs and deterrence of drug consumption by potential users price and enforcement effects may be dissimilar if consumers respond differently to changes in their budget constraints than to changes in expected punishment in particular the relative magnitudes of the responses in drug demand to changes in possession arrest probabilities and prices is an important determinant of how enforcement resources can most efficiently be allocated between buyers and sellers but in spite of this policy relevance there is little direct evidence on the relationship between arrest probabilities for cocaine and marijuana possession and demand for these drugs meanwhile the relationship between the consumption of cocaine and marijuana is both theoretically and empirically uncertain in theory cocaine and marijuana act as substitutes in the production of intoxication but also can provide complementary intoxicating effects empirically this relationship determines whether policies designed to reduce demand for one drug have effects on the other that reinforce or counteract the impacts of policies designed specifically for that other drug for instance marijuana possession arrests more than doubled nationally between 1990 and 1997 both in number and as a fraction of total arrests this might have reinforced any effect of cocaine possession enforcement on cocaine use if the two drugs are complements but had an unintended counteractive effect if they are substitutes this study provides evidence on the impacts of cocaine and marijuana prices and possession violation enforcement on the demand for these drugs we analyze data on past year cocaine and marijuana use among 12 to 39 year old respondents to the annual 1990 97 national household surveys on drug abuse nhsda along with various individual characteristics the set of explanatory variables includes regional prices of cocaine and marijuana state level measures of the probability of arrest for cocaine and marijuana possession and fixed effects for states and years our goals are to estimate the size of the response in the demand for cocaine and marijuana to changes in their prices to do the same with respect to changes in possession violation enforcement intensity and to examine whether unmeasured state characteristics can potentially bias estimated price and enforcement effects

earnings skewness and analyst forecast bias abstract we argue that if analysts objective is to provide the most accurate forecast by minimizing the mean absolute forecast error then the optimal forecast is the median instead of the mean earnings forecast bias is observed when the median is different from the mean in a skewed earnings distribution thus part of the observed analyst forecast bias could be a result of analysts efforts to improve forecast accuracy when the earnings distribution is skewed we find that earnings skewness is significantly related to analyst forecast bias we also provide evidence that the market adjusts for part of the skewness induced bias

the information content of institutional trades on the london stock exchange we construct a unique data set that includes all reported institutional block trades on the london stock exchange and analyze the market reaction to buy and sell trades we find that the type of investors behind the trade and the combination of the trade s size and the trader s resulting level of ownership are the major determinants of the information effects and the asymmetry between price impacts of buy and sell trades in particular large trades undertaken by fund managers the most active investors in our sample have strong information content while for the remaining trades we report limited support for the information and the price impact asymmetry hypotheses these results hold even after accounting for trade complexity and volatility effects in the regressions

protection for sale the case of oligopolistic competition and interdependent sectors in grossman helpman s 1994 canonical protection for sale pfs model political competition among industry lobbies is driven purely by their interests as consumers this paper introduces demand linkages and oligopolistic competition into the pfs framework to address the rivalry among lobbies stemming from product substitutability it shows that increased substitutability weakens the interest groups incentives to lobby and reduces tariff distortions this may explain why empirical tests of pfs find surprisingly little impact of lobbies on the government s trade policy decision the paper also analyzes endogenous lobby formation suggesting that demand linkages may adversely affect the industry decision to organize resume proteger les ventes le cas de la concurrence oligopolistique et des secteurs interdependants dans le modele canonique de grossman helpman 1994 protection for sale pfs la concurrence politique entre lobbyistes est purement alimentee par leurs interets en tant que consommateurs ce texte presente dans ce cadre d analyse les enchainements de la demande et la concurrence oligopolistique pour prendre en compte la rivalite entre lobbyistes qui derive de la substituabilite des produits on montre qu une substituabilite accrue reduit l incitation des groupes d interets a faire du lobbying et reduit les distorsions tarifaires cela peut expliquer pourquoi les tests empiriques du modele pfs ont decouvert un impact etonnamment faible des lobbies sur les decisions des gouvernements dans le monde des politiques commerciales le texte analyse aussi la formation endogene des lobbies suggerant que les enchainements de la demande peuvent affecter negativement la decision de s organiser

analyzing the analysts career concerns and biased earnings forecasts this paper examines the career concerns of security analysts we relate long histories of their earnings forecasts to job separations we find that relatively accurate past forecasts lead to favorable career outcomes such as remaining at or moving up to a high status large prestigious brokerage house controlling for accuracy optimistic forecasts relative to the consensus increase the chances of favorable job separations job separations depend much less on accuracy for analysts who cover stocks that are underwritten by their brokerage houses such analysts are also much more likely to be rewarded for optimistic forecasts than other analysts furthermore job separations were much less sensitive to accuracy and somewhat more sensitive to optimism during the stock market mania of the late 1990s these findings suggest that the well documented analyst forecast optimism bias is likely due to incentives to promote stocks

participation in marijuana cocaine and heroin consumption in australia a multivariate probit approach this article investigates factors affecting the participation in marijuana cocaine and heroin using micro unit data from an australian national survey on recreational drugs accounting for cross drug correlation potentially induced by unobserved personal characteristics such as individual tastes and addictive personalities we estimate a trivariate probit model where the participation decisions are jointly modelled as a system with correlated error terms the estimated correlation coefficients are significant across all three drugs the study provides valuable empirical information on conditional and joint probabilities of drug participation the multivariate approach is shown to provide better analysis relative to a univariate approach that does not address the endogeneity of all drug participation variables

preferential versus multilateral trade liberalization and the role of political economy abstract in this paper we analyze the effect of the freedom to pursue preferential trade liberalization permitted by article xxiv of the gatt on country s incentives to participate in multilateral negotiations and on feasibility of global free trade we present a model in which countries choose whether to participate in preferential or multilateral trade agreements under political pressures from domestic special interest groups we show that heterogeneity in political preferences across countries plays an important role in determining the relative merits of preferential and multilateral approaches to trade liberalization on one hand the opportunity to liberalize preferentially may be necessary to induce countries with strong political motivations to participate in multilateral free trade negotiations on the other hand when countries share similar political preferences multilateral free trade that would have been politically supported otherwise becomes unattainable if countries can pursue preferential liberalization

the bright side of managerial over optimism human estimation and inference are subject to systematic biases such as overconfidence and over optimism in contrast to prior research that has identified multiple negative consequences of these biases we focus on positive effects we empirically examine a setting in which over optimism a is a related but different bias from overconfidence b emerges dynamically in a rational economic framework and c generates higher managerial effort importantly this additional effort improves firm profitability and market value

terrorist attacks analyst sentiment and earnings forecasts we examine whether exogenous and extremely negative events such as terrorist attacks and mass shootings influence the sentiment and forecasts of sell side equity analysts we find that analysts w

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

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

the effect of cocaine prices on crime the relationship between cocaine prices and crime has critical implications for u s drug policy but is theoretically indeterminate because cocaine price changes affect crime through changes in both cocaine consumption and expenditures this paper investigates this relationship in annual data from 1981 95 on 29 large u s cities accounting for simultaneity by using two stage least squares with measures of wholesale supply factors and retail enforcement intensity as instruments for cocaine prices controlling for prices of other drugs deterrence socioeconomic factors and city and year specific effects a strong negative relationship exists between cocaine prices and six of seven fbi index crimes

sell side analysts career concerns during banking stresses we propose a new approach to examine sell side analysts career concerns by relating their forecast boldness to their employers news flows specifically we use banking sector news to proxy for the severity of career concerns analysts follow more closely the consensus forecast when the prospects of the banking sector are negative and vice versa the effect is both economically and statistically significant after controlling for various firm analyst brokerage house and forecasting characteristics as well as sector and economy wide effects the more established analysts in terms of reputation and experience are generally unaffected by banking sector news in contrast their less established peers tend to cluster their forecasts near the consensus after a sequence of negative news flows for banks collectively our results support the notion that during banking stresses when job security is low analysts tendency to imitate others increases

union membership in the united states 1973 1981 this paper reports estimates of union membership gathered from may current population surveys from 1973 to 1981 the authors present data by occupation industry selected states and smsas race gender and educational attainment the paper both extends and differs from that by freeman and medoff which presents unionism estimates for the private sector for 1968 75 to facilitate longitudinal analysis this paper reports three year moving averages of occupational and industry data and annual estimates of demographic classifications the data include public sector as well as private sector workers and they exclude workers not covered by the national labor relations act also the authors provide only union membership estimates not estimates on workers covered by union contracts this paper suggests that the percentage of all workers that are unionized in the united states remained fairly constant over the 1973 81 period

bureaucratic discretion or congressional control regulatory policymaking by the federal trade commission this paper extends stigler and peltzman s approach to regulation by incorporating a legislature the model yields comparative statics results and hence testable implications the paper then tests between two opposing approaches about regulatory agency behavior the first assumes agencies operate independently of the legislature and hence exercise discretion the second assumes that congress controls agency decisions the recent behavior of the federal trade commission provides the empirical setting substantial evidence is found for the specific predictions of the model including the hypothesis of systematic congressional influence over ftc decisions

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

the role of importers and exporters in the determination of the u s tariff preferences granted to latin america abstract this paper investigates the role played by domestic importers and foreign exporters in improving preferential access to the domestic market to this end the framework used in this paper extends the protection for sale analysis to explicitly model the role of domestic importers and foreign exporters in the determination of preferential trade treatment the predictions of the model are tested using data on preferential trade between the united states and latin american countries the results suggest that latin american exporters and us importers lobbying efforts have a significant and important role in determining the extent of preferential access granted by the united states more interestingly these findings also show that u s importers capture a very substantial share of the rents generated by tariff preferences these results therefore shed a pessimistic view on preferential trade schemes as a reliable source of gains for developing countries

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

firms governments and wto adjudication japan s selection of wto disputes what explains the selection of cases for wto adjudication this article explores the business conditions under which industries lobby their home government to use the wto adjudication process and the political factors that influence government decisions it explains the industry pattern of selection for international trade disputes as a function of the velocity of the business environment while wto adjudication is seen as costly and slow a positive ruling brings broad benefits in terms of deterrence against future discrimination firms in static industries will invest in wto dispute settlement to achieve these benefits but firms in industries shaped by dynamic competition have high opportunity costs that make them less willing to pursue adjudication this argument accounts for why there are fewer wto cases about electronics industry issues than there are likely incidences of protectionist measures since japan is a leading exporter and provides a government report with unique data on potential wto disputes it was chosen to test the argument in greater depth interviews with japanese business officials and statistical analysis of an original data set provide support for the argument the authors conclude that the passive attitude toward wto adjudication by japan s largest export industry electronics and the sensitivity of japan s diplomatic relations with china have constrained the cases that japan files these findings suggest that the effectiveness of the wto for dispute settlement is conditional upon the time horizon of the industry and the political relations among members

us non tariff barriers as privately provided public goods abstract the endogenous theory of protection is empirically investigated in a different light rather than emphasizing the determinants of the supply of protection the present study emperically investigates the micro level demand side behavior of firms predictions from bergstrom et al journal of public economics 1986 2 25 49 about the private provision of public goods provide a theoretical foundation for such a demand side econometric investigation if rational lobbies are observed to behave in a manner consistent with the theory of the private provision of public goods then it must be the case that they are able to influence trade policy the econometric specification is also consistent with the special interest models of olson the logic of collective action public goods and the theory of groups harvard university press 1965 stigler bell journal of economics and management science 1971 2 137 146 baron quarterly journal of economics 1989 1 45 72 and grossman and helpman american economic review 1994 84 833 850 hence evidence presented in this study from the demand side behavior of firms has the deeper implication that it validates the theory of endogenous protection an issue that is still controversial among trade theorists

financial analyst characteristics and herding behavior in forecasting this study classifies analysts earnings forecasts as herding or bold and finds that 1 boldness likelihood increases with the analyst s prior accuracy brokerage size and experience and declines with the number of industries the analyst follows consistent with theory linking boldness with career concerns and ability 2 bold forecasts are more accurate than herding forecasts and 3 herding forecast revisions are more strongly associated with analysts earnings forecast errors actual earnings forecast than are bold forecast revisions thus bold forecasts incorporate analysts private information more completely and provide more relevant information to investors than herding forecasts

efetividade do instrumento antidumping no brasil entre 1990 e 2007 the aim of this study was to evaluate the effectiveness of anti dumping instrument in brazil two aspects the relationship between antidumping filings and macroeconomic factors and the effects of macroeconomic variables and industry size on the likelihood of petitioner law enforcement antidumping the results showed that macroeconomic variables have no effect on the number of antidumping filings for the brazilian economy from 1990 to 2007 moreover result supports the hypothesis that adverse scenarios in the national economy and the specific characteristics of sectors petitioners for the increased probability of conclude by the application of antidumping law reducing its effectiveness

reading the tea leaves model uncertainty robust forecasts and the autocorrelation of analysts forecast errors abstract we put forward a model in which analysts are uncertain about a firm s earnings process faced with the possibility of using a misspecified model analysts issue forecasts that are robust to model misspecification we estimate that this mechanism explains approximately 60 of the autocorrelation in analysts forecast errors the remainder stems from the cross sectional variation in mean forecast errors and in analysts estimation errors of the persistence of earnings growth shocks consistent with our model we find that analysts learn about some features of the earnings process but not others and this learning reduces but does not eliminate the autocorrelation of forecast errors as firms age other potential explanations for the autocorrelation of analyst forecast errors are rejected our model of robust forecasting applies not only to analysts forecasts but also to all model based forecasts

are wages habit forming evidence from micro data although utility functions play a central role in economics the axiom that utility depends only on the absolute levels of its arguments is rarely tested this paper uses panel data on 2000 british employees who remain with the same employer and who are not promoted from one wave to the next it is shown that one important measure of well being overall job satisfaction is strongly positively correlated with the change in the worker s pay between waves but is unrelated to the current level of pay empirical tests suggest that a reference dependent satisfaction function where individual well being depends on current pay relative to past pay is more consistent with these regression results than are productivity or agency explanations of increasing wage profiles some evidence is presented of greater job satisfaction effects of pay rises for lower paid less well educated and younger workers these results provide some micro evidence consistent with the theory widespread in social science of habituation individuals may become used to any given level of consumption or income as such they tie in with the finding that a country s well being as measured by the average happiness of its citizens is only weakly correlated with its per capita gnp

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

illegal drug use and employment this article investigates the relationship between employment and the use of marijuana and cocaine for males in national longitudinal survey of youth data from 1984 and 1988 previous studies yielding mixed evidence may have inadequately accounted for the simultaneity between drug consumption and employment i implement an instrumental variable procedure that identifies drug use with variables that are empirically unrelated to employment including the regional cocaine price and a state marijuana decriminalization indicator results indicate that the use of each drug substantially reduces the likelihood of employment exogeneity tests reveal that standard probit estimates are severely biased toward zero

impacts of trade and macroeconomic linkages on canadian agriculture implications of trade and macroeconomic policies on the performance of the canadian agricultural sector were analyzed using a structural econometric model results indicated that had canada been more integrated with the world economy its volume of trade would have been 3 higher than its actual level and much greater price incentives for agriculture would have occurred

the political economy of administered protection trade restrictions are hardly ever voted directly by congress though the threat of direct congressional action is frequently present pressure for protection is usually applied through the major instruments for the administrative regulation of imports the antidumping and countervailing duty procedures and the escape clause mechanism in this paper we will examine these instruments for the administrative regulation of imports the form of the paper is not novel a theory of how these mechanisms work is developed then operational implications of this theory are deduced and tested over the record of countervailing duty antidumping and escape clause cases decided from 1975 through 1979 this is the period over which the trade act of 1974 was in force because the nature of these mechanisms is relatively unfamiliar a relatively large amount of institutional information is provided

the demand for illicit drugs i introduction illicit drug use and alcohol abuse imposes significant costs on society and on the individual users these costs include increased crime health problems and employment problems because of these considerable costs government at all levels has made drug control and the control of alcohol abuse important priorities the federal government has undertaken an aggressive program of interdiction of drug shipments and eradication of drug crops in the field the federal government and the state governments have also increased their criminal justice efforts in analyzing the effect of government drug control programs economists have applied the conventional supply and demand model to illicit drug markets the model includes a demand function that is downward sloping with respect to price and a supply function that is upward sloping or horizontal with respect to price drug programs like interdiction and drug sanctions are assumed to reduce supply and raise equilibrium price other policy options such as some form of drug legalization could increase supply and reduce equilibrium price the effect of these policies on equilibrium quantity is dependent on the elasticity of demand and on whether demand shifts since not much is known about drug price elasticities the potential effects of various drug control policies remain a speculative exercise the purpose of this paper is to estimate the effects of alcohol and drug prices on alcohol use and drug participation both own price and cross price effects are estimated there are few prior empirical studies of the effect of drug prices because data have been difficult to acquire this paper makes use of newly available data on drug prices and is the first paper to link these data to a nationally representative drug use data set of 49 802 individuals estimates of drug price elasticities are important empirical evidence that drug sales can be characterized by market forces drug price elasticities are also important in estimating the likely impact of policies that affect drug prices and in estimating the effects of drug prohibition cross price elasticities are important to estimate since they suggest the likely effects of policies such as an increase in alcohol taxes on illicit drug participation and the effects of marijuana decriminalization on alcohol cocaine and heroin use ii prior studies while there are a number of prior studies of the effects of alcohol prices and policies there are few prior studies of drug prices and polices the reason for so few prior drug studies is the limited amount of data on drug prices and the limited options for linking these data to an individual record by residential area this study uses a new data set of cocaine and heroin prices from the drug enforcement agency that was linked to individual records by the office of applied studies at the substance abuse and mental health services administration leung and phelps 1993 provide a review of a number of recent alcohol demand studies the empirical literature provides considerable evidence that shows increasing the price of alcoholic beverages to decrease alcohol use alcohol demand studies generally estimate price elasticities for beer wine and spirits separately most studies employ aggregate data but a few use individual data studies using aggregate data find price elasticities for beer from about 2 to about 1 0 for wine from about 3 to about 1 8 and for spirits from about 3 to about 1 8 studies using individual data estimate price elasticities for beer from about 5 to about 3 0 for wine at about 5 and for spirits from about 5 to about 4 0 the few prior studies of the effect of decriminalization on marijuana use generally find that marijuana decriminalization has no effect on participation pacula 1994 thies and register 1993 dinardo and lemieux 1992 and johnston o malley and bachman 1981 all used samples of young people and found no effect of marijuana decriminalization

do security analysts exhibit persistent differences in stock picking ability abstract we investigate whether security analysts exhibit persistence in their stock picking ability we find that analysts whose recommendation revisions earned the most least excess returns in the past continue to outperform underperform in the future further the market recognizes these performance differences in the five day period surrounding the recommendation revision this market reaction however is incomplete excess returns in the one and three trading months following the revision are significant and positively associated with analysts prior performance however a trading strategy taking long short positions in recommendation upgrades downgrades conditional on analysts prior performance is unprofitable

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

the economics of special interest politics the case of the tariff this paper investigates the interaction of politicians and special interest lobbies the goal is to model the equilibrium levels of redistributive policies such as taxes subsidies tariffs and regulatory decisions the model is applied throughout to the setting of tariffs by contributing to political campaigns special interest lobbies generate economic returns higher tariffs generate revenue for import competing industries through higher product prices higher milk support prices raise dairy farm income and so forth the lobby invests to maximize these net economic returns in evaluating their chances of election politicians weigh the favorable effects of special interest money against the unfavorable association with the lobby and the social cost of the redistributive policy section i explores the lobby s problem it describes a formalization of mancur olson s discussion of the voluntary provision of public goods and optimal contributions by lobbies to political campaigns section ii describes determination of the equilibrium tariff positions of each politician in a political campaign

macroeconomic determinants of the world trade disputes this article is whether and how the world macroeconomic environments influence the world trade disputes we use two pronged approach first we try to answer the question whether and how global macroeconomic environments are attached to the count of the world trade disputes even if the traditional literature captures it at the national level global picture needs to be completed the second question we address is that given the set of trade dispute initiating countries whether and how differently high middle and low income countries respond to their macroeconomic environments in their decision makings of trade disputes initiations the universe in the second question is a selected set of the filing countries only not all countries on this planet one can capture the behaviours of the countries involved in the trade disputes under certain macroeconomic circumstances the period is from 1995 to 2008 covering all records of trade disputes since the birth of the world trade organization wto

heroin consumption prices and addiction evidence from self reported panel data estimation models of drug demand should encompass the aspect of addiction here we consider two static panel data regression models and two cross section models with lags or leads in drug consumption as additional regressors heroin injectors attending a needle exchange service in oslo were interviewed twice with a one year interval despite our relatively small sample we obtain statistically significant price and income responses for nearly all of the models and specifications applied the sample is split by dealing status with dealers obtaining price elasticities in the range of 0 15 1 51 and non dealers 0 71 1 69 somewhat surprisingly the estimates of the variance of the latent individual specific variable are rather low in the panel data models although higher for non dealers than for dealers

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

reputation and performance among security analysts members of the institutional investor all american research team supply more accurate earnings forecasts than other analysts when forecasts are matched by the corporation followed and by the date of brokerage house issuance this contemporaneous advantage is complemented by a timing advantage all americans supply forecasts more often than other analysts stocks returns immediately following large upward forecast revisions suggest that all americans impact prices more than other analysts however there is virtually no difference in returns following large downward revisions nevertheless the collective results suggest a positive relation between reputation and performance and assuming that all americans are better paid pay and performance

firm participation in steel industry lobbying firm participation in steel industry lobbying i introduction what are the causes of recent protectionist pressure exerted by u s import competing firms studies by coughlin terza and khalifah 1989 feigenbaum and willett 1985 and takacs 1981 examine the empirical relationship between macroeconomic conditions and the aggregate frequency of escape clause petitions file by u s manufacturing firms although the results are mixed as to whether international macroeconomic performance influences the demand for protection the studies indicate that domestic macroeconomic conditions significantly influence the frequency of escape clause petitions 1 as important as these are to understanding the underlying sources of protectionist pressure they do not address another equally important aspect of protectionist pressure the determinants of a single industry s demand for protection the fact that most protectionist pressure results from actions taken by individual industries underscores the importance of understanding the determinants of industry pressure indeed most trade legislation is designed to respond to the problems of individuals sectors of the economy in this paper we empirically examine the microeconomic determinants of the protectionist pressure exerted by the u s steel industry in antidumping and countervailing duty cases from 1982 after the trigger price mechanism was abolished to 1986 the steel industry is a particularly attractive subject for empirical analysis since no other industry pushed more aggressively for protection during the 1980s in recognizing that the degree of pressure exerted by an industry is the aggregate result of decisions made by individual firms to contribute to a collective action the microeconomic approach offers two advantages over previous studies 2 first to explain industry pressure we model the decision of the representative firm taking into account the incentives that a firm faces in a collective setting for example we recognize that the benefits of antidumping and countervailing duties have characteristics of a public good so that individual firms may have an incentive to free ride a proposition supported by the empirical results second we specify microeconomic variables that reflect the economic conditions facing the representative firm in the steel industry rather than macroeconomic variables which may not accurately measure the economic performance of specific industries or the international pressures they face in contrast to previous studies which found a significant relationship between macroeconomic performance and aggregate pressure we do not find that the steel industry s economic performance influences the degree of industry pressure our second objective is to examine the policy implications of free riding by testing the relationship between the effectiveness of a coalition of firms and the degree of protection actually received if an effective coalition of firms can influence the policy outcome then antidumping and countervailing duties are more likely to be provided to segments of the steel industry that can minimize the free rider problem since these segments are not necessarily those that absorb the greatest injury u s trade policy may not be meeting its goal of providing greater relief to firms most injured by dumped or subsidized imports the results confirm the proposition that segments of the steel industry which are injured by dumped or subsidized imports and which can organize an effective coalition do in fact receive greater protection than those segments that are merely injured ii the representative firm s decision to contribute to a less than fair value action to obtain protection from alleged less than fair value lfv imports imports that are either dumped by foreign firms or subsidized by foreign governments firms representing a domestic industry must file a complaint of foreign dumping or export subsidization with the international trade administration ita which then determines the magniture of dumping or subsidization

substitutability and protectionism latin america s trade policy and imports from china and india this article examines the trade policy response of latin american governments to the rapid growth of chinese and indian exports in world markets to explain more protection in sectors where a large share of imports originates in china and india the protection for sale model is extended to allow for region specific degrees of substitutability between domestic and imported varieties of a good the results suggest that more protection toward chinese and indian goods can be explained by the higher substitutability of chinese and indian goods with domestic varieties the data support the model which performs better than the original protection for sale framework in explaining latin america s structure of protection

injury based protection with auditing under imperfect information 1 introduction this article focuses on the use of signals to limit distortionary protection when a domestic firm has private information about injury from foreign competition we assume that a domestic authority is mandated to use trade policy to maintain domestic production while minimizing costs to domestic consumers the presence of asymmetric information about domestic production costs means that the firm will have an incentive to overstate the harm it is suffering from imports we analyze how the authority can use an incentive device to punish a firm if a costly audit determines that the firm has overstated its injury an incentive compatible mechanism is derived consisting of a probability of audit a tariff and a penalty that will insure that the firm does not retain informational rents associated with the private information this basic problem of an authority assessing domestic injury arises in a number of critical trade policy contexts the two most prominent examples in the world trade organization wto system are safeguard mechanisms and unfair trade remedies i e antidumping and countervailing duty investigations in both types of administered protection cases a domestic trade authority must determine whether injury beyond some critical level has occurred before wto consistent protection can be imposed the information used to evaluate injury is provided by the affected domestic industry which has an obvious incentive to overstate the harm caused by foreign competition given that these types of contingent protection procedures are the single most important form of protection under the wto system potential misuse of private information is of great importance there are two strands of relevant literature the first considers strategic behavior in the specific context of administered protection the second concerns information asymmetries in more general trade policy outcomes the former strand has focused on strategic behavior between firms to exploit administered protection procedures prusa 1992 shows how antidumping cases in home and foreign firms can manipulate contingent protection to enforce collusion staiger and wolak 1991 study how antidumping acts as a cartel enforcing device in a noncooperative infinitely repeated game framework in a two period noncooperative game framework with uncertainty prusa 1994 shows that the home firm might feign first period injury in order to get the protection in the second period this may induce foreign firms to raise their export prices and to lower their own domestic market price as shown by fischer 1992 firms will try to act strategically to increase the endogenous probability of protection leidy and hoekman 1991 and leidy 1994 extend this concept more broadly to contingent protection and call it spurious injury the second strand of the literature focuses more broadly on incomplete information in trade policy collie and hviid 1994 investigate rent extraction from a foreign monopolist with incomplete information about domestic demand qiu 1994 and brainard and martimort 1997 investigate strategic trade policy with incomplete information about the domestic cournot firm s costs herander and kamp 1999 consider how incomplete information about the domestic cost structure can affect the outcomes of quantitative restrictions while collie and hviid 1994 herander and kamp 1999 and qiu 1994 use a signaling game framework brainard and martimort 1997 develop their approach within an incentive contracts context this article s approach is based on both incentives and signals we follow partially the approach of kohler and moore 1998 who analyze the same information asymmetries but use transfers to the domestic firm to elicit truth telling the present analysis takes perhaps a more realistic tack by considering how an authority can audit information provided by the firm to eliminate misrepresentation of injury

policing cannabis and drug related hospital admissions evidence from administrative records abstract we evaluate the impact of a policing experiment that depenalized the possession of small quantities of cannabis in the london borough of lambeth on hospital admissions related to illicit drug use to do so we exploit administrative records on individual hospital admissions classified by icd 10 diagnosis codes these records allow the construction of a quarterly panel data set for london boroughs running from 1997 to 2009 to estimate the short and long run impacts of the depenalization policy unilaterally introduced in lambeth between 2001 and 2002 we find that the depenalization of cannabis had significant longer term impacts on hospital admissions related to the use of hard drugs raising hospital admission rates for men by between 40 and 100 of their pre policy baseline levels the impacts are concentrated among men in younger age cohorts the dynamic impacts across cohorts vary in profile with some cohorts experiencing hospitalization rates remaining above pre intervention levels three to four years after the depenalization policy is introduced we combine these estimated impacts on hospitalization rates with estimates on how the policy impacted the severity of hospital admissions to provide a lower bound estimate of the public health cost of the depenalization policy

rationality and drug use an experimental approach in rational addiction theory higher discount rates encourage drug use we test this hypothesis in the general framework of rationality and behaviour under risk we do so using an experimental design with real monetary incentives the decisions of 34 drug addicts are compared with those of a control group the decisions of drug users du are not any less consistent with standard theories of behaviour over time and under risk further there is no difference in the estimated discount rate between drug users and the control group but the former do appear to be more risk seeking

efficiency of purchasing and selling agents in markets with quality uncertainty the case of illicit drug transactions abstract since akerlof s theory of lemons economists have viewed quality uncertainty as an informational advantage for sellers drawing on frontier techniques we propose in this paper a simple method for measuring inefficiency of both sellers and buyers in markets for goods with different levels of quality we apply a non parametric robust double frontier framework to the case of illicit substance markets which suffer from imperfect information about drug quality for purchasers and to a lesser extent for sellers we use unique data on cannabis and cocaine transactions collected in france that include information about price quantity exchanged and purity we find that transactional inefficiency does not really benefit either dealers or purchasers furthermore information influences the performance of agents during market transactions

analyst forecast consistency we show empirically that analysts who display more consistent forecast errors have greater ability to affect prices and that this effect is larger than that of stated accuracy these results lead to three implications first consistent analysts are less likely to be demoted and are more likely to be nominated all star analysts second analysts strategically deliver downward biased forecasts to increase their consistency if at the expense of stated accuracy finally the benefits of consistency and of lowballing accuracy are increasing decreasing in institutional investors presence

conflict of interest and the credibility of underwriter analyst recommendations brokerage analysts frequently comment on and sometimes recommend companies that their firms have recently taken public we show that stocks that underwriter analysts recommend perform more poorly than buy recommendations by unaffiliated brokers prior to at the time of and subsequent to the recommendation date we conclude that the recommendations by underwriter analysts show significant evidence of bias we show also that the market does not recognize the full extent of this bias the results suggest a potential conflict of interest inherent in the different functions that investment bankers perform

rationality and analysts forecast bias this paper proposes and tests a quadratic loos utility function for modeling corporate earnings forecasting where financial analysts trade off bias to improve management access and forecast accuracy optimal forecasts with minimum expected error are optimistically biased and exhibit predictable cross sectional variation related to analyst and company characteristics empirical evidence from individual analyst forecasts is consistent with the model s predictions these results suggest that positive and predictable bias may be a rational property of optimal earnings forecasts prior studies using classical notions of unbiasedness may have prematurely dismissed analysts forecasts as being irrational or inaccurate

endangering the war on terror by the war on drugs the united states is currently engaged in two wars one of which is less than a decade old the other has lasted over a century the first the war on terror against islamist fundamentalists began with al qaeda s destruction of the world trade centre s twin towers on sept 11 2001 this led to the us invasion of afghanistan the defeat of the taliban and the dislocation of al qaeda s terrorist infrastructure with osama bin laden and his deputy al zawahari having to flee to the lawless badlands between pakistan and afghanistan with the creation of a democratically elected government under ahmad karzai it might have been thought that the war on terror in afghanistan had been won but as the taliban cum al qaeda scorpion had been squashed but not killed it is now remerging with the resurgence of the taliban and its continuing support for the refurbished al qaeda terrorist network in the southern provinces particularly in helmand of afghanistan this area also happens to be the major poppy growing area in afghanistan for conversion into opium and heroin in 2007 it provided 92 of the world s opium supply whose farm gate value was us 1 billion 1 it is this opium economy which is now as in the past providing the taliban with the money for arms and growing control over the southern opium growing provinces by offering farmers protection from the opium eradication programs spearheaded by the us as part of its war on drugs the first part of this paper

endogenous lobby formation and endogenous protection a long run model of trade policy determination this paper provides a theory of lobby formation within a framework in which trade policy is determined through political contributions under certain conditions free trade turns out to be an equilibrium outcome either when the government has a high affinity for political contributions or when it cares a great deal about social welfare moreover greater inequality in asset distribution results in a greater number of lobbies and in most cases more protection for each of these lobbies furthermore industries with higher levels of capital stock fewer capitalists more inelastic demand and smaller geographical dispersion are the ones that get organized

an econometric analysis of coca eradication policy in colombia abstract we estimate an econometric model of coca production in colombia our results indicate that coca eradication is an ineffective means of supply control as farmers compensate by cultivating the crop more extensively the evidence further suggests that incentives to produce legal substitute crops may have greater supply reducing potential than eradication

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

retracted relationship incentives and the optimistic pessimistic pattern in analysts forecasts we examine whether analysts incentives to maintain good relationships with management contribute to the optimistic pessimistic within period time trend in analysts forecasts in our experiments 81 experienced sell side analysts from two brokerage firms predict earnings based on historical information and management guidance analysts forecasts exhibit an optimistic pessimistic pattern across the two timing conditions early and late in the quarter and the effect is significantly stronger when the analysts have a good relationship with management than when their only incentive is to be accurate debriefing results indicate that analysts are aware of this pattern of forecasts and believe that this benefits their future relationships with management and with brokerage clients the analysts most frequently cite favored conference call participation and information access when describing benefits from maintaining good relationships with management our results suggest the following the optimistic pessimistic pattern in forecasts is in part a conscious response to relationship incentives information access is perceived to be a major benefit of management relationships and recent regulatory changes may have lessened but have not eliminated this conflict of interest source

security analysts career concerns and herding of earnings forecasts several theories of reputation and herding see e g scharfstein and stein 1990 suggest that herding among agents should vary with career concerns our goal in this paper is to document whether such a link exists in the labor market for security analysts specifically we look at the relationship between an analyst s job tenure a proxy for career concerns and various measures of stock earnings forecast performance we establish the following key results 1 older analysts are more likely to produce earnings forecasts of firms before younger ones 2 their forecasts also deviate more from the consensus forecast than their younger counterparts we argue that these results are consistent with some reputational models of herding we also establish a number of auxiliary findings regarding the relationship between forecast accuracy and frequency of forecast revisions with job tenure

cocaine the complementarity between legal and illegal trade i show that the decreased price of cocaine in its major destination markets is partly explained by a lower smuggling cost which is itself the consequence of an increased international trade in legal goods first because more legal imports are associated with a bigger number of transporters and therefore with a bigger supply of potential drug smugglers second because as the number of legal shipments grows the individual inspection probability decreases lowering the risk born by the smugglers and thus their compensation the cocaine market provides evidence of a complementarity between legal and illegal trade

the price elasticity of hard drugs the case of opium in the dutch east indies 1923 1938 at the beginning of this century the dutch government controlled the opium market in the dutch east indies nowadays indonesia for several decades this state monopoly was called the opiumregie using information gathered during the opiumregie this paper estimates price elasticities of opium consumption it appears that short term price elasticities of opium use are about 0 7 long term price elasticities are about 1 0

inefficiency in analysts earnings forecasts systematic misreaction or systematic optimism a rational analysis of analyst behavior predicts that analysts immediately and without bias incorporate information into their forecasts several studies document analysts tendency to systematically underreact to information underreaction is inconsistent with rationality other studies indicate that analysts systematically overreact to new information or that they are systematically optimistic this study discriminates between these three hypotheses by examining the interaction between the nature of information and the type of reaction by analysts the evidence indicates that analysts underreact to negative information but overreact to positive information these results are consistent with systematic optimism in response to information the literature on financial analysts defines the phrase forecast inefficiency to mean forecasts that fail to accurately incorporate new information on a timely basis and or that are biased these forecasts have also been described as irrational or suboptimal prior studies report inefficiency in analysts forecasts finding that they are upwardly biased and inaccurately reflect available information some studies conclude from this that analysts underreact to information other studies conclude that analysts overreact if markets treat analysts forecasts as both rational and statistically optimal then inefficient forecasts could have important implications for the efficiency of pricing in securities markets in this paper we reexamine the apparent tendency of analysts to misinterpret earnings information the intent of this study is to discriminate between three hypotheses 1 that analysts systematically underreact to new earnings information 2 that analysts systematically overreact to new earnings information and 3 that analysts are systematically optimistic in their reactions for hypotheses 1 and 2 the direction of the misinterpretation i e underor overreaction is independent of the nature of the information received in contrast hypothesis 3 predicts that analysts are optimistic in interpreting

expectations management and stock returns we establish a link between firms managing investors performance expectations earnings announcement premiums and cyclical patterns i e seasonalities in returns firms that are more likely to manage expectations toward beatable levels predictably earn lower returns before and higher returns during their earnings announcements this pattern repeats across firms fiscal quarters suggesting firms manufacture positive surprises by negatively biasing investors expectations ahead of announcing earnings we corroborate these findings using non price based outcomes indicative of expectations management together our findings are consistent with the pressure for firms to meet earnings targets shaping the cross section of firms stock returns

do countries free ride on mfn abstract the most favored nation mfn clause has long been suspected of creating a free rider problem in multilateral trade negotiations to address this issue we model multilateral negotiations as a mechanism design problem with voluntary participation we show that an optimal mechanism induces only the largest exporters to participate in negotiations over any product thus providing a rationalization for the principal supplier rule we also show that through this channel equilibrium tariffs vary according to the herfindahl hirschman index of export shares higher concentration in a sector reduces free riding and thus causes a lower tariff estimation of our model using sector level tariff data for the u s provides strong support for this relationship

protectionism versus risk in screening for invasive species abstract i examine the extent to which enforcement of a biosecurity import restriction us border inspections for foreign pests and diseases is used as a protectionist trade barrier the parameters of a structural model of border inspection are estimated using a detailed dataset documenting the outcome of us agricultural border inspections i find that inspections are conducted in a manner that places an implied welfare weight on domestic producers relative to consumers ranging from 1 to 1 63 i also find evidence that the inspection agency takes terms of trade into account when inspecting agricultural imports these results suggest that border inspections are used as a protectionist non tariff barrier

the effect of issuing biased earnings forecasts on analysts access to management and survival this study offers evidence on the earnings forecast bias analysts use to please firm management and the associated benefits they obtain from issuing such biased forecasts in the years prior to regulation fair disclosure analysts who issue initial optimistic earnings forecasts followed by pessimistic earnings forecasts before the earnings announcement produce more accurate earnings forecasts and are less likely to be fired by their employers the effect of such biased earnings forecasts on forecast accuracy and firing is stronger for analysts who follow firms with heavy insider selling and hard to predict earnings the above results hold regardless of whether a brokerage firm has investment banking business or not these results are consistent with the hypothesis that analysts use biased earnings forecasts to curry favor with firm management in order to obtain better access to management s private information

an exogeneity test for a simultaneous equation tobit model with an application to labor supply a test of weak exogeneity in the simultaneous equation tobit model is proposed and illustrated using a female labour supply model estimated using cross section data the test statistic can be simply output from any standard tobit maximum likelihood package and is asymptotically efficient the procedure provides consistent estimators for the simultaneous tobit model whose asymptotic covariance matrix is a simple extension of the usual tobit formula we also provide the lagrange multiplier test of weak exogeneity this abstract was borrowed from another version of this item

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