Individual Behaviours and Substance Use: The Role of Price

Abstract

I discuss economic approaches to the demand for harmfully addictive substances with an emphasis on the role of money prices. First, I examine trends in the real prices and in the prevalence of the use of cigarettes, alcohol, cocaine, heroin, and marijuana in the U.S.A. Then I present estimates of time-series demand functions. Next, I discuss how economists have modified their traditional model of consumer behaviour to incorporate the addictive aspects of illegal substances. I conclude with implications for tax policy and for the lively and contentious debate concerning the legalization of marijuana, cocaine, and heroin.

Citation

Grossman, M. (2005), "Individual Behaviours and Substance Use: The Role of Price", Lindgren, B. and Grossman, M. (Ed.) Substance Use: Individual Behaviour, Social Interactions, Markets and Politics (Advances in Health Economics and Health Services Research, Vol. 16), Emerald Group Publishing Limited, Leeds, pp. 15-39. https://doi.org/10.1016/S0731-2199(05)16002-6