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Individual Heterogeneity and Price Responses in Tobacco Consumption: A Two-Commodity Analysis of Unbalanced Panel Data

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Abstract

The paper presents a panel data analysis of tobacco demand. The purpose is threefold: (i) to measure income, own-price, and cross-price responses for two tobacco commodities: cigarettes and handrolling tobacco, (ii) to investigate sociodemographic effects, and (iii) to utilize the potential offered by panel data to investigate unobserved heterogeneity. The latter is crucial for commodities where consumers have different tastes and where users tend to become addicted. Several linear and non-linear specifications of a two-equation system are estimated, using an unbalanced panel data set of Norwegian households over the period 1975 - 1994 and a modified Maximum Likelihood procedure. Differences between the results based on the sub-sample of smokers and on the pooled sample of smokers and non-smokers are interpreted. For both commodities we find a high degree of unobserved heterogeneity and several robust and "heory consistent" patterns with respect to price responses and demographic effects.

Suggested Citation

  • Knut R. Wangen & Erik Biørn, 2001. "Individual Heterogeneity and Price Responses in Tobacco Consumption: A Two-Commodity Analysis of Unbalanced Panel Data," Discussion Papers 294, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:294
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    File URL: https://www.ssb.no/a/publikasjoner/pdf/DP/dp294.pdf
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    Cited by:

    1. Biorn, Erik, 2004. "Regression systems for unbalanced panel data: a stepwise maximum likelihood procedure," Journal of Econometrics, Elsevier, vol. 122(2), pages 281-291, October.
    2. Knut R. Wangen & Erik Biørn, 2001. "Prevalence and substitution effects in tobacco consumption: A discrete choice analysis of panel data," Discussion Papers 312, Statistics Norway, Research Department.
    3. Jørgen Aasness & Odd Nygård, 2014. "Revenue functions and Dupuit curves for indirect taxes with cross-border shopping," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(2), pages 272-297, April.
    4. Biørn, Erik, 2009. "Modelling Addiction in Life-Cycle Models: Revisiting the Treatment of Latent Stocks and Other Unobservables," Memorandum 26/2009, Oslo University, Department of Economics.

    More about this item

    Keywords

    Tobacco. Panel data. Addiction. Cross-price response. Heterogeneity.;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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