AN EMPIRICAL-ANALYSIS OF ALCOHOL ADDICTION - RESULTS FROM THE MONITORING THE FUTURE PANELS

In a panel of young adults, we find that alcohol consumption is addict ive in the sense that increases in past or future consumption cause cu rrent consumption to rise. The positive and significant future consump tion effect is consistent with the hypothesis of rational addiction. T he long-run price elasticity is approximately 60% larger than the shor t-run price elasticity and twice as large as the elasticity that ignor es addiction. Thus, a tax hike policy to curtail consumption or abuse may not have a favorable cost-benefit ratio unless it is based on the long-run price elasticity.