Estimation of the Demand for Cigarettes: A Review of The Literature

Abstract

This paper reviews work on the demand for cigarettes showing considerable agreement on a statistically significant inelastic price response which is much greater in the long- run. It also appears that, on balance, there are significant negative effects of health scares. The evidence on the effects of advertising is inconclusive. Restrictions on smoking in public places appear to decrease demand. At present, the rational addiction model looks set to dominate the field. Unfortunately it has, in common with the earlier work, received an uncritical response. The results gained are highly questionable; the time-series studies were carried out without reference to the literature on cointegration. Further, the rational addiction models have encountered acute problems with implausible discount rates and insignificant price terms.