The effect of smoking on health using a sequential self-selection model

We estimate a structural model of individual smoking behaviour emphasizing the role of individual risk belief on smoking choices. Our model consists o f five equations: two selection equations for initiation and cessation deci sions, and three switching outcome regressions for nonsmokers, ex-smokers, and current smokers. The presence of significant self-selectivity implies t hat the health effects of smoking based on sample proportions do not correc tly indicate the true risk of cigarette smoking. Further, our evidence sugg ests that the self-selection in the cessation decision, but not in the init iation decision, is consistent with economic rationality. We estimate the m odel by full information maximum likelihood (FIML) with starting values fro m heteroskedasticity corrected Heckman-Lee two-step method using newly rele ased Health and Retirement Study (HRS) data. Copyright (C) 2000 John Wiley & Sons, Ltd.