Addiction and Alcohol Consumption: Evidence from Italian Data

University of Siena Mimeo, 2004

In this paper we estimate the demand for alcoholic beverages in Italy following the rational addiction demand framework by Becker and Murphy (1988) and using the GMM estimator. We use time series of national accounts data on an aggregate of alcoholic ...

The main topics of the project are: • To deepen the knowledge of Dynamic Rational Addiction Theory; • To verify whether intra-households resources sharing rules are different in high alcohol consumption households; • To find the optimal taxation of habits generating goods in order to reduce alcohol consumption and the negative effects of alcohol-related behaviours.

Department of Economics University of Siena, 2010

A panel of Italian single households is used to test for rational addiction in alcohol consumption. These monthly consumption data raise problems of measurement errors and unobservable heterogeneity. To deal with the zeros in the dependent variable we adopt a ...

2008

In this paper we embed the Almost Ideal Demand System within a dynamic disequilibrium model, and derive a set of interrelated Euler equations which characterizes optimal consumption allocations under adjustment costs. It is argued that when applied to alcohol and tobacco expenditure, the proposed specification features the rational addiction hypothesis, as both forward-looking rational behaviour and habit formation are explicitly accounted for. The suggested estimation approach controls for potential nonstationarity in ...

Journal of Consumer Policy, 1999

The purpose of this paper is to test Becker and Murphy's (1988) rational addiction model on 35 years of time series data on alcohol consumption in each of the four Nordic countries: Denmark, Finland, Norway, and Sweden. The empirical relevance of rational addiction theory is assessed by examining the influence of past and future consumption and contemporaneous prices on current consumption. More precisely, the rational addiction model maintains that past and future consumption should have a positive effect and that current price should have the conventional negative effect on consumption. In addition, some parameter restrictions (regarding past and future prices and consumption) implied by rational addiction are tested. Finally, the own-price elasticities from rational addiction specifications are compared to those obtained from more conventional demand specifications which ignore addiction. Ignoring addiction may provide misleading estimates of the price sensitivity of alcohol...

2007

This paper describes the life-cycle alcohol consumption patterns of Italian households by decomposing gender, cohort, age and time effects and estimates the importance of demographic characteristics using a double-hurdle model. The application is based on ISTAT households expenditure survey for the period 1997-2002 organized in cohorts. As expected, cohort and age effects are significant in both participation and consumptions. The significance of gender and geographic differences suggests important policy implications.

2004

This paper develops a feasible dynamic modelling approach for the Almost Ideal Demand System, which is consistent with the rational addiction theory. The forward-looking hypothesis is combined with that of convex adjustment costs in the presence of non-stationary cointegrated variables. Estimation is based on a two-step strategy based on cointegration and GMM techniques.

Empirical Economics, 2009

This paper adopts a multi-commodity habit formation model to study whether unhealthy behaviors are related, i.e. whether there are contemporaneous and inter-temporal complementarities between alcohol and tobacco consumptions in Italy. To this aim time series data of per-capita expenditures and prices during the period 1960 to 2002 are used. Own price elasticities are negative and tobacco appears to be more responsive than alcohol demand, although both responses are less than unity. Cross price elasticities are also negative and asymmetric thus suggesting complementarity. A "double dividend" could then be exploited, because public policy needs to tackle the consumption of only one good to control the demand of both. These results show that the optimal strategy for maximizing public revenues would be to raise alcohol taxation more than tobacco taxation. Finally, past consumption of one addictive good does not significantly reinforce current consumption of the other.

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