Multiple Rational Addiction and the Effect of Price on Consumption

Monday, June 13, 2016: 9:10 AM
F45 (Huntsman Hall)

Author(s): Davide Dragone

Discussant: Michael Grossman

This paper proposes a theoretical model to study intertemporal choice among multiple addictive goods. We show that a variety of behavioral patterns may arise and that the law of demand may fail to hold when reinforcement is very strong. When this is the case, price-based policy interventions may have counterintuitive effects and possibly backfire. As an illustration we consider smoking and eating behavior and we focus on the effect of increasing the price of tobacco on smoking behavior, food consumption and body weight.