Is There a Stepping-Stone Effect in Drug Use? Separating State Dependence from Unobserved Heterogeneity Within and Across Illicit Drugs

A longstanding question is whether alcohol and marijuana use by teenagers exerts a "stepping stone'' effect, increasing the chances that they will use harder drugs in the future. Empirically, teenagers who use alcohol or marijuana in one period are more likely to use cocaine in the future. This pattern can be explained in one of two ways: by a causal effect of soft drug consumption on future consumption of hard drugs (i.e., a true stepping-stone effect) or by unobserved characteristics that make people more likely to use soft drugs at a relatively young age, and hard drugs at a later age (i.e., correlated unobserved heterogeneity). Distinguishing between these alternatives is highly policy relevant because, to the extent that there is a true stepping stone effect, policies that reduce the use of soft drugs by young people will have lasting impact on the use of hard drugs by adults. I use data from the National Longitudinal Study of Youth 1997 (NLSY97), to estimate a dynamic discrete choice model of teenager’s use of alcohol, marijuana and cocaine over multiple years, and separately identify the contributions of state dependence and unobserved heterogeneity. I find modest-sized but statistically significant ``stepping-stone'' effects from softer to harder drugs, which are largest among the youngest individuals in my sample. In contrast, I find little evidence of a stepping stone effect from cocaine to alcohol or marijuana. Simulations show that restricting alcohol and marijuana use at young age has a modest impact on reducing later cocaine use.