@article{4d566569d0c8474c9aca8a453d02c37a,

title = "Harmful addiction",

abstract = "We construct an infinite horizon model of harmful addiction. Consumption is compulsive if it differs from what the individual would have chosen had commitment been available. A good is addictive if its consumption leads to more compulsive consumption of the same good. We analyse the welfare implications of drug policies and find that taxes on drugs decrease welfare while prohibitive policies may increase welfare. We also analyse the agent's demand for voluntary commitment ({"}rehab{"}). For appropriate parameters, the model predicts a cycle of addiction where the agent periodically checks into rehab. Between these visits his drug consumption increases each period.",

author = "Faruk Gul and Wolfgang Pesendorfer",

note = "Funding Information: Establishing that the preference represented by W with (u,v,σ,δ) satisfying the conditions (i–iii) of the theorem satisfies Axioms 1–7, I, N, and P is straightforward. Hence, to conclude the proof of the converse, we need to show only that the ≽ represented is regular. Since u is non-constant, there exist (c¯,d¯) and (c,d) such that u(c,d) > u(c¯,d¯). Pick any x ∈ Z and let z¯ = {(c¯,d¯,x)} and z = {(c,d,x)}. Then, it follows from the representation of Theorem 2 that W(s, z ∪ z¯) = W(s, z¯)> W(s, z). Next, let y¯ = {(c, dˆ, z¯)} and y =(c, dˆ +ε, z) for z¯, z as defined above and some c, dˆ and some ε > 0. It follows from the continuity and increasingness of v that for ε sufficiently small, W(s, y¯) > W(s, y ∪ y¯) proving that ≽ is regular. ‖ Acknowledgements. This research was supported by grants SES9911177, SES0236882, SES9905178, and SES0214050 from the National Science Foundation. The authors thank the editor and two anonymous referees for helpful comments.",

year = "2007",

month = jan,

doi = "10.1111/j.1467-937X.2007.00417.x",

language = "English (US)",

volume = "74",

pages = "147--172",

journal = "Review of Economic Studies",

issn = "0034-6527",

publisher = "Oxford University Press",

number = "1",

}