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Demand for cigarettes revisited: an application of the threshold regression model

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  • Bwo‐Nung Huang
  • Chin‐Wei Yang

Abstract

Recent estimates of the income elasticity of cigarette demand have pointed to a disturbing result: a nearly zero or sometimes negative income elasticity. In order to explore the nonlinearity embedded in the cigarette demand structure, we employ a four‐regime panel model (dynamic fixed effect) to estimate the cigarette demand function in the United States. The results indicate that income elasticity is (i) positively significant for the income level less than 8,568 US$, (ii) positive but statistically insignificant for the income greater than 18,196 US$, and (iii) negatively significant for the income range between 8,568 and 18,196 US$. In addition, we find that the price elasticity assumes the greatest absolute value for the income level in excess of 18,196 US$, but becomes most inelastic for the income level between 11,129 and 18,196 US$.

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  • Bwo‐Nung Huang & Chin‐Wei Yang, 2006. "Demand for cigarettes revisited: an application of the threshold regression model," Agricultural Economics, International Association of Agricultural Economists, vol. 34(1), pages 81-86, January.
    • Handle: RePEc:bla:agecon:v:34:y:2006:i:1:p:81-86
    DOI: 10.1111/j.1574-0862.2006.00105.x
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    Cited by:

    1. Yu, Ping, 2012. "Likelihood estimation and inference in threshold regression," Journal of Econometrics, Elsevier, vol. 167(1), pages 274-294.
    2. Kuo, Chii-Shyan & Li, Ming-Yuan Leon & Yu, Shang-En, 2013. "Non-uniform effects of CEO equity-based compensation on firm performance – An application of a panel threshold regression model," The British Accounting Review, Elsevier, vol. 45(3), pages 203-214.
    3. Gülcan ÖNEL, 2018. "An implicit model of adjustment costs in differential input demand systems," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(2(615), S), pages 119-132, Summer.
    4. Alfred K. Mukong & Ernest N. Tingum, 2018. "The Demand for Cigarettes: New Evidence from South Africa," Working Papers 745, Economic Research Southern Africa.
    5. Rulof Petrus Burger & Lodewicus Charl Coetzee & Carl Friedrich Kreuser & Neil Andrew Rankin, 2017. "Income and Price Elasticities of Demand in South Africa: An Application of the Linear Expenditure System," South African Journal of Economics, Economic Society of South Africa, vol. 85(4), pages 491-514, December.
    6. Brosig, Stephan & Glauben, Thomas & Götz, Linde & Weitzel, Enno-Burghard & Bayaner, Ahmet, 2011. "The Turkish wheat market: spatial price transmission and the impact of transaction costs," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 27(2), pages 147-161.
    7. Yi-Chi Chen & Chang-Ching Lin, 2010. "Threshold Effects in Cigarette Addiction: An Application of the Threshold Model in Dynamic Panels," Economics Bulletin, AccessEcon, vol. 30(4), pages 3128-3142.
    8. Rulof Petrus Burger & Lodewicus Charl Coetzee & Carl Friedrich Kreuser & Neil Andrew Rankin, 2017. "Income and Price Elasticities of Demand in South Africa: An Application of the Linear Expenditure System," South African Journal of Economics, Economic Society of South Africa, vol. 85(4), pages 491-514, December.
    9. Abdulbaki Bilgic & Wojciech Florkowski & Cuma Akbay, 2010. "Demand for cigarettes in Turkey: an application of count data models," Empirical Economics, Springer, vol. 39(3), pages 733-765, December.

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