Harmful addiction

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71 Scopus citations


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.

Original languageEnglish (US)
Pages (from-to)147-172
Number of pages26
JournalReview of Economic Studies
Issue number1
StatePublished - Jan 2007

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics


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