Addiction and Smoking Behaviour in Italy

Abstract

Since the end of the eighties the Becker and Murphy model of rational addiction has been the dominant approach to estimate addiction e ects. The main implication of the model is that public policy, in principle, should not interfere with a fully rational behaviour. However, the additional public health care costs smokers impose on non smokers could be internalised using price mechanisms, as the long run price elasticity of demand is supposed to be, according to this model, significantly higher than the short run one and higher than that obtained from alternative models of addiction, such as the habit persistence model. In this paper we estimate the demand for Tobacco and related products in Italy using PANEL data supplied by ISTAT for the twenty Italian regions. The rational addiction model is used to estimate addiction e ects following the methodological approach suggested by Baltagi and Levin (2001). The myopic addiction model is also estimated as an alternative way of modelling addiction e ects. These data seem to support the rational addiction model, although the results are not clearcut. We have thus estimated the same models using Time Series of per-capita Households Tobacco expenditures from the Italian National Accounts. In this case, the data strongly support the Rational Addiction model and produce elasticities in line with similar case studies.