Addiction and The Role of Commitment Devices

Abstract

This paper studies if external commitment devices are effectively capable of helping agents to reduce their consumption of addictive goods (alcohol, cigarettes, drugs, fatty foods etc.). The main assumption introduced in the model is that individuals are sophisticated hyperbolic discounters. The model shows that making easier the access to such instruments has ambiguous effects on individuals' welfare. First, hyperbolic agents purchase commitment devices less often that they wish to. Second, once the device has been purchased, consumption of addictive goods does not necessarily decrease. In particular, for mild level of addiction, commitment devices effectively reduce consumption and improve health status. However, for severe level of addiction, the consumption of the sin good increases, and the availability of commitment devices worsens the addictive problem. Finally, policy implications are derived.

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