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Chapter 5 The Economcis of Addiction Frank J. Chaloupka, John A. Tauras, and Michael Grossman This
chapter reviews economic models of addiction. After a brief
discussion of the psychological and physiological factors
that distinguish addictive consumption from the consumption
of most products, these general approaches to modeling
addiction are described. The first of these treats addiction
as imperfectly rational behavior that result in seemingly
inconsistent behavior such as expresssing a desire to quit
but continuing to smoke. The second approach assumes that
addicts behave myopically. In these models, the dependence
of current addictive consumption choices on past decisions
is recognized, but the future implications of these choices
are ignored. The final approach, employed in the rational
addiction models, also recognizes the dependence of current
consumption decisions on past choices, but treats addicts as
rational or farsighted in that they are assumed to consider,
at least to some extent, the future consequences of their
current decisions. Empirical applications of these models
cleary indicate that cigarette smoking is an addictive
behavior, in that current smoking decisions depend on past
smoking. Moreover, these models consistently find that
increases in price will lead to reductions in smoking, with
the long run impact of a permanent price increase larger
than its immediate impact. The eveidence concerning the
rationality of smokers, however, is mixed. This review is
followed by a discussion of recent developments in the
economic modeling of addiction that emphasized the roles of
uncertainity, adjustment costs, and time-inconsistent
preference in explaining specific aspects of addictive
behavior. |