MENTAL ILLNESS AND THE DEMAND FOR ALCOHOL, COCAINE, AND CIGARETTES

I. INTRODUCTION The U.S. Surgeon General (US Department of Health and Human Services [USDHHS] 1999) reports that the indirect costs of mental illness were $79 billion in 1990, and in 1996 the United States spent $69 billion on treatment of mental illness. Also, about 112,000 deaths in the United States each year are related to alcohol and illicit drug use (USDHHS 2002). In 1995, the economic cost of alcohol and drug abuse was $276 billion. This includes the costs of health care, motor vehicle crashes, crime, lost productivity, and other adverse outcomes. Tobacco use is responsible for additional 430,000 deaths per year among adults in the United States, representing more than 5 million years of potential life lost. Direct medical costs related to smoking total at least $50 billion per year. Both mental illness and the consumption of addictive goods are associated with increased levels of mortality, physical illnesses, nonfatal accidents, lost income, reduced productivity, and emotional damage caused to children by afflicted parents (McGinnis and Foege 1993; USDHHS 1999). Diagnosable mental illness affects about 24% of the U.S. population in any given year, and about 43% of the population have had a diagnosable mental illness some time during their lives. There is considerable correlation between mental illness and the consumption of addictive goods. (1) The 24% of the population with a current mental illness consume about 38% of all the alcohol, 44% of all the cocaine, and 40% of all cigarettes. The 43% of the population who have had a period of mental illness sometime during their lives consume about 69% of all the alcohol, 84% of all the cocaine, and 68% of all cigarettes. This article has two goals. The first goal is to empirically examine the effect of mental illness on the level of consumption of alcohol, cocaine, and tobacco. Raw data indicate that mental illness is associated with higher consumption of addictive goods. This may be due to uncontrolled factors, such as income or education. The research in this article examines the effect of mental illness holding other factors that affect addictive consumption constant while controlling for reverse causality and simultaneity. The second goal is to empirically estimate the price elasticity of alcohol, cocaine, and tobacco for individuals with a history of mental illness. Although this study is primarily intended for economists, the subject matter is, in part, usually the domain of psychologists. As such, some definitions are needed from the outset. The U.S. Surgeon General (USDHHS 1999) describes mental illness as abnormalities in cognition, emotion, mood, and social function. The term "mental illness" is used to describe minor as well as major problems, and almost everyone experiences problems of this type at some time and to some degree. Mental illness is associated with an inappropriate level and duration of these problems. What is inappropriate and what is not is derived from social norms and is neither objective nor fixed. Despite these difficulties, a systematic approach to classification and diagnosis of mental illness has been developed by the American Psychiatric Association. The definition and criteria for diagnosis of specific mental illnesses are contained in the Diagnostic and Statistical Manual of Mental Disorders (DSM) (American Psychiatric Association 1987). Substance abuse and substance dependence refer to specific disorders defined in the DSM. Economists generally use the term "substance abuse" more loosely to refer to a harmful level of consumption of addictive goods. Because this article relies on the definitions of mental illness provided by the DSM, the term "substance abuse" is used only in its DSM context. However, mental illness is defined to exclude substance abuse and substance dependence disorders because the inclusion of these disorders would bias the mentally ill group to high addictive consumption. The interaction between the consumption of addictive goods and mental illness is a complex process. …