Reefer Madness, Frank the Tank, or Pretty Woman: To What Extent Do Addictive Behaviors Respond to Incentives?

Abstract

This chapter examines different kinds of health behavior that are important inputs in the production of health, with an emphasis on the effects of incentives on habitual or addictive behaviors such as alcohol consumption, smoking, drug use, sex, and obesity-related behaviors such as diet and physical exercise. In economics, an addictive activity has three characteristics: tolerance, withdrawal, and reinforcement. The chapter first describes three competing social science models of addictive behavior and their implications for public policy: the irrational actor model, the perfectly rational actor model, and the imperfectly rational actor model. It then discusses whether incentives such as prices and non-price costs influence addictive behaviors, derived demand and peer effects, and the link between time-inconsistent preferences and addictive behaviors.

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