Journal of Political Economy
Cigarette demand equations accounting for tolerance, reinforcement, and withdrawal are derived using the Becker-Murphy model of rational addiction and are estimated using data from the second National Health and Nutrition Examination Survey. Estimates imply that smoking is addictive, individuals are not myopic, and price increases would reduce demand. Implications concerning time preference and addiction are tested by estimating the demand separately for samples based on age and education. Less educated (younger) individuals are found to behave more myopically than more educated (older) individuals, whereas more addicted (myopic) individuals are found to respond more to price, in the long run, than less addicted (myopic) individuals.