rational demand and expenditures patterns under habit formation abstract this paper proposes a model in which habit formation is present in a relatively general but tractable way the consumer s problem is transformed into a sequence of two period fisherian problems by introducing a reduced utility function to ensure full dynamic rationality of the consumer by making preferences dependent on past real expenditure levels rather than past consumption bundles it is possible to characterize the long run behavior of the consumer stability analysis is performed the cases of immediate habit formation and delayed habit formation are discussed

s p 500 trading strategies and stock betas this paper shows that s p 500 stock betas are overstated and the non s p 500 stock betas are understated because of liquidity price effects caused by the s p 500 trading strategies the daily and weekly betas of stocks added to the s p 500 index during 1985 1989 increase on average by 0 211 and 0 130 the difference between monthly betas of otherwise similar s p 500 and non s p 500 stocks also equals 0 125 during this period some of these increases can be explained by the reduced nonsynchroneity of s p 500 stock prices but the remaining increases are explained by the price pressure or excess volatility caused by the s p500 trading strategies i estimate that theprice pressures accountfor 8 5 percent of the total variance of daily returns of a value weighted portfolio of nyse amex stocks the negative own autocorrelations in s p 500 index returns and the negative cross autocorrelations between s p 500 stock returns provide further evidence consistent with the price pressure hypothesis

the effects of cross border bank mergers on bank risk and value abstract this paper examines the effects of cross border bank mergers on the risk and abnormal returns of acquiring banks we find that overall the acquirers risk neither increases nor decreases in particular on average neither their total risk nor their systematic risk falls relative to banks in their home banking market the abnormal returns to acquirers are negative and significant but are somewhat higher when risk increases relative to banks in the acquirer s home country

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

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

international asset pricing and portfolio diversification with time varying risk we test the conditional capital asset pricing model capm for the world s eight largest equity markets using a parsimonious generalized autoregressive conditional heteroskedasticity garch parameterization our methodology can be applied simultaneously to many assets and at the same time accommodate general dynamics of the conditional moments the evidence supports most of the pricing restrictions of the model but some of the variation in risk adjusted excess returns remains predictable during periods of high interest rates our estimates indicate that although severe market declines are contagious the expected gains from international diversification for a u s investor average 2 11 percent per year and have not significantly declined over the last two decades

an analysis of count data models for the study of exclusivity in wine consumption several models which analyse count data have been proposed in econometric literature these models allow the discrete nonnegative nature of specific phenomena of interest to be gathered in a appropriate way and can be useful for the explanation of specific preference structures among individuals in this work an analysis of the number of wine types consumed by residents of tenerife is carried out with an aim to observe which characteristics determine the exclusivity in its consumption given the current context of increased competition in this sector the specific characteristics of the considered variable allow the study to cover two aspects the first is methodological and is seen by the variety of models that may be considered in this case this focus consists in comparing several possibilities which fit the type of count data involved the second aspect is clearly empirical and is based on the description of not only the most appropriate decision making mechanism for the study but in the identif

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

a rational eating model of binges diets and obesity this paper addresses the rapid diffusion of obesity and the existence of different individual patterns of food consumption between non dieters and chronic dieters i propose a rational eating model where a forward looking agent optimizes the intertemporal satisfaction from eating taking into account the cost of changing consumption habits and the negative health consequences of having a non optimal body weight consistent with the evidence i show that the intertemporal maximization problem leads to a condition of overweightness and that heterogeneity in the individual relevance of habits in consumption can determine the observed differences in the individual intertemporal patterns of food consumption and body weight sufficient conditions for determining when the convergence to the steady state implies oscillations or is monotonic are given in the former case the agent optimally alternates diets and binges until the steady state is reached in the latter a regular intertemporal pattern of food consumption is optimal

estimating fishing and hunting leisure spending shares in the united states abstract we apply a bivariate censored demand system to estimate hunting and fishing trip related spending shares in the united states using data from off site surveys the approach considers fishing and hunting destination decisions and includes respondents who were inactive i e did not hunt or fished in a particular season the statistical significance of correlation coefficient parameter supports the use of a joint e g bivariate rather than separate e g univariate decision modeling process for fishing or hunting share equations most individual characteristics are statistically significant as explanatory variables respondents holding recreation licenses tended to spend significantly more on recreation than those without licenses all own price and cross price elasticities are statistically significant and suggest that hunting and fishing are complements the results also suggest that the popularity of hunting may decline as the population ages

regulating prostitution a health risk approach abstract we build an equilibrium model of prostitution where clients and sex workers choose to demand and supply sex under three legal regimes prohibition regulation and laissez faire the key feature is the endogenous evolution of the risk as a consequence of policy changes we calibrate the model to empirical evidence from italy and then compare the effect of different policies on the equilibrium quantity of prostitution and on the harm associated with it a prohibition regime that makes it illegal to buy sex but not to sell it is more effective than the opposite regime in reducing quantity taxes are one inducement to go illegal and prevent some of the less risky individuals from joining the market leaving it smaller but riskier a licensing system that prevents some infected individuals from joining the legal market reduces the risk and is therefore associated with an increase in quantity prohibition is preferable to minimize quantity only if a high expected fine is feasible regulation is best to minimize harm

another look at the role of the industrial structure of markets for international diversification strategies abstract this paper re examines the extent to which gains from international diversification are due to differences in industrial structure across countries recent papers by roll 1992 journal of finance 47 3 42 and heston and rouwenhorst 1994 journal of financial economics 36 3 27 investigate this issue and find conflicting evidence using a new database the dow jones world stock index with coverage in 25 countries and over 66 industry classifications we decompose comprehensively both country and industrial sources of variation we confirm that little of the variation in country index returns can be explained by their industrial composition we also uncover differences in the proportion of variation in industry index returns that is captured by country and industry factors and discuss the implications for global diversification strategies

a double hurdle approach to modelling tobacco consumption in italy this article analyzes the determinants of tobacco expenditures for a sample of italian households a box cox double hurdle model adjusted for heteroscedasticity is estimated to account for separate individual decisions concerning smoking participation and tobacco consumption and to correct for nonnormality in the bivariate distribution of the error terms nested univariate and bivariate models are found to be excessively restrictive supporting the adequacy of a generalized specification estimation results show that consumption decisions are significantly affected by income and demographic characteristics in particular income positively impacts tobacco expenditure while participation probability substantially declines as age increases the existence of significant gender differences in both smoking participation and tobacco consumption patterns is found while high education and white collar occupation reduces the likelihood to smoke and tobacco expenditure levels single adult households have a lower

a microeconometric model analysis of us consumer demand for alcoholic beverages this paper discusses the specification and estimation of a two stage budgeting consumer demand for alcoholic beverages using 1987 88 usda individual and household food consumption survey data the upper level first stage budgeting decision is modelled via a gamma tobit model the lower level second stage budgeting allocates alcohol expenditure via a synthetic demand system for beer spirits and wine the synthetic system is constructed via a normalized linear combination of the level rotterdam cbs and an aids equivalent model data on individual three day alcohol consumption from the individual food intake survey are used for analysis while price and household characteristics information are obtained from the house hold food intake survey the results show that some individual and household characteristic variables as well as economic variables have significant impacts on consumer demand for alcoholic beverages

demand systems estimation with microdata a censored regression approach demand systems estimation increasingly makes use of household level microdata mainly to measure the effects of demographic variables data based on these household expenditure surveys present a major estimation problem for any given household many of the goods have zero consumption implying a censored dependent variable techniques which do not take this censored dependent variable into account will yield biased results we utilize a censored regression approach that is computationally simple consistent and asymptotically efficient the results are then presented and compared with those obtained using an uncensored technique

how are stock prices affected by the location of trade abstract we examine pairs of large siamese twin companies whose stocks are traded around the world but have different trading and ownership habitats twins pool their cash flows so with integrated markets twin stocks should move together however the difference between the prices of twin stocks appears to be correlated with the markets on which they are traded most i e a twin s relative price rises when the market on which it is traded relatively intensively rises we examine several explanations of this phenomenon including the discretionary use of dividend income by parent companies differences in parent expenditures voting rights currency fluctuations ex dividend date timing issues and tax induced investor heterogeneity only the last hypothesis can explain some but not all of the empirical facts we conjecture that a country specific sentiment shocks might affect share intensity b investors are rational but markets are segmented by frictions other than international transactions costs such as agency problems

the value of active investing can active institutional investors remove excess comovement of stock returns this study uses cremers and petajisto s 2009 method to separate active institutional investors from passive ones and shows that active investors can alleviate the anomalous comovement of stock returns focusing on 2 events linked to the excess comovement anomaly standard poor s 500 index additions and stock splits i find that if an event stock has more active institutional investors trading in the post event period the anomalous comovement effect disappears in contrast if an event stock experiences a massive exit of active investors this anomaly persists the exit of active institutional investors also results in a strong price synchronicity effect

rational addiction with learning and regret we present a theory of rational behavior in which individuals maximize a set of stable preferences over goods with unknown addictive power the theory is based on three fundamental postulates that consumption of the addictive good is not equally harmful to all that individuals possess subjective beliefs concerning this harm and that beliefs are optimally undated with information gained through consumption although individual actions are optimal and dynamically consistent addicts regret their past consumption decisions and regret their initial assessment of the potential harm of the good addict prone individuals who believe it could not happen to them are most likely to be drawn into a harmful addiction

modelling time inconsistent preferences abstract the paper reviews some recent theoretical contributions on the modelization of time inconsistent preferences as well as implications for individual behavior the focus is on the interpretation of the concepts and the link with concepts in psychology

effects of enforcement on illegal markets evidence from migrant smuggling along the southwestern border abstract the paper analyzes the effects of tighter border control on the illegal crossing market between mexico and the united states combining panel data on illegal migrants with enforcement statistics the effects of enforcement are found to be moderate prices of border smugglers coyotes increased by only 17 while the demand for smugglers has remained unchanged enforcement has however shifted illegal migrants to remote crossing places border crossing is now more time intensive with higher prices for coyotes and risk of death this geographic substitution raised migration costs by 140 more than twice the effect of enforcement on smuggling prices

entrepreneurship social mobility and income redistribution in south india development economists have been preoccupied with the problem of increasing the size of the gnp pie to the relative neglect of its distribution despite the recent disenchantment with the viewpoint that all classes share in the benefits of industrial growth empirical data on the distribution of income business opportunity and economic power are in short supply many of the studies on entrepreneurship and economic development when they are not apologetics for ruthless capitalist exploitation as paul baran suggests extol the achievements of the capitalist entrepreneur without examining class origins and monopoly advantage joseph schumpeter sees entrepreneurs irrespective of class origin as heroic figures with the dream and will to found a private kingdom to conquer adversity to achieve success for its own sake and to experience the joy of creation for gustav papanek 1967 the private entrepreneur who is frugal diligent far sighted remarkably able and willing to take political risks is in large part responsible for the success of pakistan in achieving rapid industrialization

the price elasticity of african elephant poaching the objective of this paper is to provide an estimate of the elasticity of elephant poaching with respect to prices ivory being a storable commodity subjects its price to hotelling s no arbitrage condition hence allowing identification of the supply curve the price of gold one of many commodities used as stores of value is thus used as an instrument for ivory prices the supply of illegal ivory is found to be price inelastic with an elasticity of 0 4 with changes in consumer prices passing through to prices faced by producers at a rate close to unity estimations based on a number of alternative estimation approaches all confirm the conclusion that supply is inelastic the paper ends with a brief discussion on what such finding implies for elephant conservation policies

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

cross section estimation of us demand for alcoholic beverage a flexible limited dependent variable model is used to examine us demand for alcoholic beverage parameterization and distributional assumptions of the double hurdle model cragg 1971 and tobit model tobin 1958 are rejected findings suggest that price income household composition and other characteristics have significant effects on alcohol consumption income and own price elasticities are significant but relatively small

on bias correction in the multivariate sample selection model heien and wessells two step estimator for the multivariate sample selection model has been used extensively during the past 15 years a modified version of it with slightly different selectivity regressors has also appeared in the empirical literature both estimators are unfounded and generally do not correct for the sample selectivity bias as intended but have continued to gain popularity in empirical applications the properties of the modified heien wessells procedure are investigated in both the bivariate and multivariate contexts and the conditions under which this estimator fails to correct for sample selectivity are examined the theoretical properties are demonstrated with a simulated random sample

disaggregated household meat demand with censored data previous research on meat demand has generally used highly aggregated data across time products and consumers however meat products across species are likely stronger substitutes than some products from the same species further demand for specific meat products would be expected to respond differently to market information about food safety or other events this study uses monthly consumer panel data collected between 1992 and 2000 to estimate a disaggregated meat product demand system the use of the expectations maximization algorithm is introduced to estimate a demand system that adjusts for the econometric problem of censored data resulting from purchased shares of some products by individuals often being equal to zero results indicate that certain individual meat products have noticeably different own price elasticities than existing aggregate meat product estimates of their respective species some individual meat products have stronger substitutes across species than within species e g be

urban household demand for fresh fruits and vegetables in thailand 300 200 2550 abstract food systems are undergoing profound changes in developing countries particularly on fresh produce with specific quality and safety attributes an understanding of the demandpatterns and their underlying determinants are important in designing food policies and generating information for local supply actors the disaggregate demand parameters for fresh fruits vegetables that have different product and process attributes were estimated by using the two stage budgeting framework the methodology accounted for censored data the analysis is based on crosssectional data of 300 households in bangkok and 200 households in urban areas of chiang mai in 2007 the trend in domestic demand for fresh fruits vegetables is towards an emphasis on safety quality and convenience economic development along with higher household incomes and educational levels of consumers contribute to this tendency households are becoming more price responsive to fresh produce from modern supply chain sectors the entire food sector should adapt to changes in consumers preferences traditional retailers should create customer trust by adopting safety and quality standards and upgrading the quality attributes of fresh produce modern retailers should sustain own reputation and improve product lines by adopting premium standards policies and programs that foster income growth along with better education will spur demand for better quality products and lead to diversification in diets the government should encourage the development and adoption of credible standards and product and process certification schemes an information campaign to educate consumers on food safety and quality would expand the market for fresh produce and benefit farmers keywords fruit vegetable demand elasticity food safety almost ideal demand system

rational addiction to caffeine an analysis of coffee consumption it is common knowledge that coffee tea and other beverages that contain caffeine are habit forming a recent medical study confirms that caffeine is strongly addictive with subjects exhibiting syndromes of intoxication withdrawal and dependence strain et al 1994 p 1043 that study concludes that the effect is physiological not just psychological it is of interest to ask whether the addictive nature of the most widely used psychoactive substance in the world is apparent from data on consumption there are several economic models of addiction among them the rational addiction model of becker and murphy 1988 stands out because of its simplicity and consistency with economic theory in this model the utility a consumer derives from consumption depends not only on the quantity c that is consumed but also on the degree of addiction at addiction is a form of human capital taking the form of a possibly harmful rather than beneficial stock variable it is increased as a by product of consumption and it gradually depreciates as time passes thus current consumption affects future choices consuming the good now increases its desirability in the future the becker murphy model is rational and forward looking in that the consumer is aware of these future effects and weighs them in making the current consumption choice this is in strong contrast to models that are based on assumptions of myopia and nonrational behavior an implication of the model is that this forward looking behavior can be detected in the data theory predicts that consumption data

wine consumption by us men wine consumption is modelled by focusing on three decisions the first is whether to consume any alcoholic beverages setting aside the teetotalers the second decision is whether to consume wine and the third choice is how much to consume we model these decisions using a double hurdle approach our econometric results indicate that the probability a man drinks wine increases if he is under age 65 has a high income and is a high school graduate heavy wine consumers are over age 65 are well educated physically active and have high incomes

the engel curve for alcohol and the rank of demand systems this paper shows that the quadratic shape of the engel curve for alcohol is induced by preference heterogeneity between drinkers and abstainers in a japanese data set with controlling the heterogeneity it is shown that the engel curve for alcohol slopes monotonically downwards for drinkers and that the probability of being a drinker is an increasing function of total expenditure these two relationships generate a quadratic shape for the engel curve for alcohol other goods in this data set appear to have nearly linear engel curves so if the alcohol engel curve for drinkers is also linear then after controlling for this preference heterogeneity the rank of this demand system would be two copyright 2006 john wiley sons ltd

sample selectivity models for away from home expenditures on wine and beer the impact of household characteristics on away from home wine and beer weekly expenditures in the usa is examined results imply that higher income households without children and headed by an older white and higher educated individual spend more on wine away from home than do others on the other hand smaller midwestern and western households without children and headed by a younger and white individual spend more on beer away from home than do others

cigarette tax revenues and tobacco control in japan the hypotheses of non addiction myopia and rational addiction are tested using annual quarterly and monthly data changes in the prices of japanese cigarettes can be viewed as exogenous from the point of view of consumer behaviour because the japanese government controls cigarette prices the empirical results of this paper support the addiction hypothesis the short run and long run price elasticities range from 0 338 to 0 421 and from 0 679 to 0 686 respectively thus increases in tax revenues in the long run are likely to be smaller than those in the short run as a result tax increases would be an effective means of curbing smoking and reducing its social cost furthermore the debt compensation programmes for the japan railway and the national forestry will not go according to plan unless revenues are increased in the future

loss aversion in a consumption savings model abstract we propose a model of consumption and saving based on kahneman and tversky s prospect theory that implies a fundamental asymmetry in consumption behavior inconsistent with other models of consumption when there is sufficient income uncertainty a person resists lowering consumption in response to bad news about future income this resistance is greater than the resistance to increasing consumption in response to good news we present empirical evidence from five countries that confirms this behavior

household demand for fats and oils two step estimation of a censored demand system a censored system of household fat and oil demand equations is estimated with a two step procedure using cross sectional data from the 1987 1988 us nationwide food consumption survey own price and total expenditure elasticities are close to unity and there is no evidence of gross substitutability compensated elasticities suggest net substitution among the products considered

urban shrinkage and resurgence in germany this article questions the strict parallelism of demographic and economic development in characterising urban shrinkage in germany as the cases of several ruhr cities and east german cities prove urban economic growth can be achieved thanks to the substantial presence of modern industries and business services and despite declines in population size serious shrinkages of halle cottbus and schwerin are primarily due to failures in the post industrial transformation process recent policy measures strongly oriented towards slowing the downsizing process of population via e g urban regeneration strategies do not appear to be sufficient for achieving urban resurgence in these cities more active industrial policy measures are required there to create a competitive high tech manufacturing sector to stimulate innovation activities and to boost its growth interdependence with modern local services and r d infrastructure

habit formation and demand for sugar sweetened beverages using scanner data we estimated demand for nine nonalcoholic beverages under habit formation we found strong evidence for habit formation although demand for sugar sweetened beverages by low income households is less elastic to own price changes compared with high income households there is evidence that high income households consider beverages to be more substitutable than low income households do a half cent per ounce tax on store purchased sugar sweetened beverages will result in a moderate reduction in consumption of sugar sweetened beverages for both income strata because of habit formation long run national tax revenue from a sugar sweetened beverage tax is about 15 to 20 lower than short run revenue

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

a simple nonadditive preference structure for models of household behavior over time intertemporal separability is an almost universal assumption in empirical work on household behavior but a good deal of recent work on consumption and labor supply suggests that it may not be tenable the traditional weakening of this assumption is to allow for habit formation i propose an alternative structure for intertemporal preferences that nests intertemporal additivity in a simple way and yields closed form solutions for demand functions this structure includes the neoclassical durables model as a special case i derive a demand system that nests the almost ideal system as its time separable counterpart this model is estimated on u k aggregate time series data for seven goods time separability is decisively rejected moreover i find that ignoring temporal dependencies leads to considerable bias in the estimates of elasticities of the seven goods durables display the strongest nonseparable effect the estimated reactions are consistent with the neoclassical durables model

determinants of state tobacco control expenditures while centers for disease control and prevention believe that most state governments under fund tobacco control programs little is known about why large variation in spending exists between state governments this study explores reasons for spending variation through an econometric model of per capita spending on tobacco control programs that explores the effects of smoking prevalence while holding constant tobacco settlement funds state budget deficits and other factors that might also be expected to influence spending variation empirical evidence indicates no support for the hypothesis that states with high smoking prevalence spend more on tobacco control than other states this finding may be quite surprising to those working in areas of public health and clearly leads to many important policy questions regarding why the data indicate that funding does not appear to bear any relation to perceived public health problems as would be predicted if policymakers were following a rational needs approach

the diversity of north american shrinking cities demographically and economically there is an ongoing global shift that has resulted in the uneven development and distribution of monetary human and knowledge capital this paper first examines a

procrastination and obedience in this lecture i shall focus on situations involving repeated decisions with time inconsistent behavior although each choice may be close to maximizing and therefore result in only small losses the cumulative effect of a series of repeated errors may be quite large thus in my examples decision makers are quite close to the intelligent well informed individuals usually assumed in economic analysis but cumulatively they make seriously wrong decisions that do not occur in standard textbook economics this lecture discusses and illustrates several pathological modes of individual and group behavior procrastination in decision making undue obedience to authority membership of seemingly normal individuals in deviant cult groups and escalation of commitment to courses of action that are clearly unwise in each case individuals choose a series of current actions without fully appreciating how those actions will affect future perceptions and behavior the standard assumption of rational forwardlooking utility maximizing is violated the nonindependence of errors in decision making in the series of decisions can be explained with the concept from cognitive psychology of undue salience or vividness for example present benefits and costs may have undue salience relative to future costs

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

paradoxical effects of drug policy in a model with imperfect competition and switching costs this paper presents a stylized model of the market for hard drugs we assume that there is imperfect competition that the demand side is dominated by addicts and that the presence of switching costs leads to consumer loyalty drug policies affect the values of the parameters of the model including the degree of consumer loyalty and the static price elasticity of demand taking into account these effects it is shown that tough policies may lead to an increase in the marketing activities by suppliers and cause a long run increase in the number of addicts and total consumption

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

alcohol consumption censorship and misjudgement in the study of the economic determinants of alcohol consumption there is an under appreciated issue of sample selectivity as consumption is often not fully observed sample selectivity involves i

self command in practice in policy and in a theory of rational choice an increasingly familiar occurrence for obstetricians is being asked by patients to withhold anesthesia during delivery the physician often proposes that a facemask be put beside the patient who may inhale nitrous oxide as she needs it but some determined patients ask that no such opportunity be provided if gas is available they will use it and they want not to be able to the request is interesting for decision theory and raises questions of ethics policy and physician responsibility even if the woman is merely making a mistake if she simply does not know how painful labor will be and how glad she will be even in retrospect if the pain is relieved but some women who make this request have had earlier deliveries during which they demanded anesthesia and received it they are acquainted with the pain they anticipate asking for relief and they want it withheld when they do they expect to regret afterwards any recourse to anesthesia this particular instance of attempted selfdenial has features that are special but many that are common the woman is so far as we know in good health physically and mentally she anticipates a transient period when her usual values and preferences will be suspended or inaccessible she has reasons for wanting to frustrate her own wishes at the critical time she needs cooperation she may ratify her choice afterward by expressing herself grateful that no anesthesia was offered even when requested there are ethical dilemmas and legal issues and there is conflict if say the husband disagrees with the physician in the delivery room about what his wife really wants

a theory of urban decline economy demography and political elites during the past decades large cities in advanced industrialised countries have experienced different demographic and economic trajectories some are continuing to grow in population and jobs many have experienced decline to account for the process of decline and its consequences a general model of urban decline is proposed it specifies the relationship between employment population political elites and urban fiscal revenues constructs and propositions are drawn from economic and ecological theorems empirical evidence is based on literature predominantly from germany and the us

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

international investment restrictions and closed end country fund prices some closed end country funds trade at large premiums relative to their net asset values this paper examines whether international investment restrictions raise country fund price net asset value ratios by segmenting international capital markets we test whether a relation exists between announcements of changes in investment restrictions and changes in these ratios using weekly data from may 1981 to january 1989 the results provide evidence that some foreign markets are at least partially segmented from the u s capital market

excess covariance and dynamic instability in a multi asset model the presence of excess covariance in financial price returns is an accepted empirical fact the price dynamics of financial assets tend to be more correlated than their fundamentals would justify we advance an explanation of this fact based on an intertemporal equilibrium multi assets model of financial markets with an explicit and endogenous price dynamics the market is driven by an exogenous stochastic process of dividend yields paid by the assets that we identify as market fundamentals the model is rather flexible and allows for the coexistence of different trading strategies the evolution of assets price and traders wealth is described by a high dimensional stochastic dynamical system we identify the equilibria of the model consistent with a baseline assumption of procedural rationality we show that these equilibria are characterized by excess covariance in prices with respect to the dividend process moreover we show that in equilibrium there is a positive expected marginal profit in choosing more risky portfolios as a consequence the evolutionary pressure generates a trend towards more remunerative strategies which in turn increase the variance of prices and the dynamic instability of the system

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

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 sale of alcohol in denmark recent developments and dependencies on prices taxes how do prices affect the choice of types of alcohol in denmark we study the danish sale of alcoholic beverages in a time series framework first we look at annual data from 1980 investigating the hypothesis of a fairly stable level of sales we conclude stationarity of sales and we also find that the income elasticity of total sales has been zero second we analyse the composition of the alcohol sale between beer wine and spirits in a multivariate model conditional on the development in prices for this analysis we use johansen cointegration techniques again we test that income can be omitted from the model and we use the model to derive the effects on the composition of alcohol sales of three different sets of changes in the alcohol taxation

changing household characteristics and the away from home food market a censored equation system approach abstract the american consumer is obtaining more and more of his or her food at a restaurant and that worries some people concerned with the nation s dietary health to date much of this concern seems to be directed at the fast food segment of the restaurant industry this paper asks whether targeting one segment of the industry such as fast food restaurants is justified or whether a more balanced view of eating away from home is required to answer this question we look to the future and ask whether americans can be expected to purchase increasingly more fast food or more and more of the foods typically associated with full service dining one view is that sales at full service restaurants will now grow relatively faster than sales of fast food the argument supporting this position rests on rising incomes the aging of the population smaller household sizes and other changes taking place in the population using a new full information maximum likelihood procedure for estimating a system of censored expenditure equations we find evidence to support this argument

a dynamic contracting model for wages and employment in three european economies we present a structural dynamic non linear model for an efficient contracting between a firm facing adjustment costs on labour and a union having preferences which are subject to habit formation the model s first order necessary conditions are estimated for the french the dutch and the belgian labour market the estimation results turned out to be remarkably similar for the three countries two alternative hypotheses are also investigated i a myopic behaviour of the union and ii a competitive labour market the performance of the efficient contract model with a forward looking union is found to be superior to that of the neo classical model in explaining the dynamics of employment and wages in the three countries

does increasing the beer tax reduce marijuana consumption previous studies suggest that alcohol and marijuana are economic substitutes so recent policies restricting the availability of alcohol have led to an increase in the amount of marijuana consumed using micro level data from the national longitudinal survey of youth nlsy to estimate individual demand equations for alcohol and marijuana this research finds that alcohol and marijuana are economic complements not substitutes further this research finds that increases in the federal tax on beer will generate a larger reduction in the unconditional demand for marijuana than for alcohol in percentage terms

excess comovement in international equity markets evidence from cross border mergers we examine the changes in betas from international mergers we find that the beta with respect to the acquirer s home market rises and that with respect to the target s home market falls the effect is large and robust with respect to controls for changes in the operations of the companies involved such an effect can occur only if international equity markets are not integrated we also find that the effect has not reduced over time that cross listings do not generally have a significant effect on international betas and that the u s and u k are more integrated internationally than other markets

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

on efficient distribution with private information this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with many consumers each of whom is subject to private idiosyncratic taste shocks we propose a recursive method for finding feasible allocations that are incentivecompatible and that are pareto optimal within this set the method is applied to several parametric examples we find that in an efficient allocation the degree of inequality continually increases with a diminishing fraction of the population receiving an increasing fraction of the resources we discuss the extent to which these allocations can be decentralized via market arrangements this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with private information the economy we study has a constant endowment flow of a single non storable consumption good which is to be allocated each period among a large number of consumers each period these consumers experience unpredictable idiosyncratic privately observed taste shocks affecting their marginal utility of current consumption efficiency dictates that more resources be allocated to those consumers who in any given period have a high marginal utility of current consumption

rationally addicted to drinking and smoking when modelling demand for addictive consumption goods the most widely used framework is the rational addiction model proposed by becker and murphy this paper extends the rational addiction model to include two addictive consumption goods alcohol and cigarettes and using aggregate annual time series on sales volumes for the period 1955 1999 estimates the aggregate demand for these goods in sweden where ols estimates are compared to gmm estimates allowing for possible endogeneity of lagged and lead consumption first the demand for alcohol and cigarettes are estimated as separate equations and it is found that alcohol demand is quite well described by the rational addiction model while the same is not true for cigarettes the own price elasticities are negative and alcohol demand is more elastic than cigarette demand the cross price elasticities are also negative showing that alcohol and cigarettes are complements since consumption of alcohol and cigarettes are probably simultaneous decisions th

a double hurdle model of cigarette consumption this paper shows the importance of the double hurdle approach for modelling individuals cigarette consumption using data from the uk general household survey and argues that participation and consumption should be treated as separate individual choices the likelihood function for the full double hurdle is derived and it is shown how restrictions on the stochastic specification of the model and auxillary information which identifies ex smokers allow it to be decomposed the empirical results highlight the value of the sample separation information and the need to model starting and quitting as separate decisions

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

the effects of market segmentation and investor recognition on asset prices evidence from foreign stocks listing in the united states non u s firms cross listing shares on u s exchanges as american depositary receipts earn cumulative abnormal returns of 19 percent during the year before listing and an additional 1 20 percent during the listing week but incur a loss of 14 percent during the year following listing we show how these unusual share price changes are robust to changing market risk exposures and are related to an expansion of the shareholder base and to the amount of capital raised at the time of listing our tests provide support for the market segmentation hypothesis and merton s 1987 investor recognition hypothesis the globalization of u s capital markets has accelerated dramatically in the past decade increasing numbers of companies from overseas have chosen to either raise capital through global equity issues or prepare for future capital raising by way of cross listings on u s exchanges as of 1997 about 1 300 non u s companies have listed their shares for trading on the new york stock exchange nyse the american exchange amex the national association of securities dealers automation quotation nasdaq system or

rational habit formation abstract this paper discusses consumer demand under rational habit formation if consumer tastes change endogenously through habit stocks depending on past consumption the rational consumer will make allowance of the future habit forming effects of current consumption a model with rational habit formation is made formally equivalent to an intertemporal consumer model without habit formation by redefining the cost of consumption and wealth the cost of consumption is obtained by adding the cost of future induced consumption to the rental price of the commodity the extended wealth concept is obtained by subtracting the cost of the initial stocks of habits and the cost of future physically necessary consumption from wealth the paper also investigates the implication of rational habit formation for constructing one period cost of living indices

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

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

the implications of heterogeneous habit in consumer beverage purchases on soda and sin taxes abstract in this article we study the heterogeneity of habit strength in households demand for regular carbonated sweetened beverages csbs and beer in the united states a demand model that nests a smooth transition function is used to describe habit based consumption patterns revealing heterogeneous strengths of habits among households we find that more habitual consumers those with a strong preference for a particular product are not as sensitive to price or expenditure as the aggregate population this finding is further supported by simulations of the potential effects of soda and beer taxes we find the aggregate response to soda and beer taxes is smaller than when the influence of habit is assumed to be homogeneous

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

home bias and international risk sharing twin puzzles separated at birth abstract we document that international home bias in debt and equity holdings declined during the period 1993 2003 at the same time as international risk sharing increased using panel data regressions for oecd countries we demonstrate that less home bias is associated with more international risk sharing more generally we show that more financial integration is associated with more risk sharing when we measure financial integration as the ratio of foreign assets to gross domestic product our results indicate that risk sharing and international financial integration are closely related empirical phenomena

a censored system of cigarette and alcohol consumption many previous studies of us cigarette and alcohol consumption have focused on single equations however the addictive nature of consumption suggests that it is more appropriate to model these products as a system we propose a two step estimation procedure and apply the procedure to a system of equations for cigarette beer and wine consumption results differ from those derived from an existing two step procedure findings suggest that consumption of cigarettes beer and wine is responsive to income changes but the elasticities are rather small personal physiques education age race ethnicity health gender employment status and regions also play significant roles in consumption

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

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

u s cigarette consumption the case of low income women we use double hurdle or cragg models to test whether decisions about smoking participation and consumption levels are separate endogenous choices we also estimate several dominance models which assume that standard corner solutions are not applicable a complete dominance model with independence between the participation and consumption decisions is the preferred specification for our data the most important variables influencing participation are region number of children education and ethnicity region age race ethnicity and health status most affected consumption levels

on adaptation and the demand for health the purpose of this paper is to analyse the impacts of adaptation to failing health this is done by integrating adaptation processes in a grossman type of pure consumption model model simulations show that adaptation affects the health variables by lowering the incentives to invest in health as well as smoothing the optimal health stock path over the life cycle whether or not the risk of mortality is an object of choice has important effects when studying adaptation as well as for the joint development of the health variables