Empirical Economics

, Volume 56, Issue 2, pp 703–733 | Cite as

Dynamic panel data estimation of an integrated Grossman and Becker–Murphy model of health and addiction

  • Andrew M. Jones
  • Audrey Laporte
  • Nigel Rice
  • Eugenio ZucchelliEmail author


We propose a dynamic panel data approach to estimate a model that integrates the Becker–Murphy theory of rational addiction with the Grossman model of health investment. We define an individual’s lifetime smoking consumption and investments in health capital as simultaneous choices within a single optimisation problem. We show that this can be estimated using GMM system estimation of two stand-alone single fourth-order difference equations of health capital and smoking. These preserve roots and fundamental dynamics of the original system of four interrelated first-order equations. Monte Carlo simulations confirm that this reduced-form dynamic estimation also produces very similar estimates to the ones of the initial system of equations. We argue that, in the presence of long panel data, this approach may provide a feasible alternative for the estimation of a complex life-cycle model of human capital.


Addiction Health capital Smoking Dynamic panel data models 

JEL classification

C1 C3 C5 C6 I1 



The authors gratefully acknowledge funding from the Economic and Social Research Council (ESRC) under Grant Reference RES-060-25-0045. We are grateful to Victor Aguirregabiria, Jonneke Bohlaar, Brenda Gannon, Eleonora Fichera, Aloysius Siow, Matt Sutton, and participants of the 8th International Health Economics Association (iHEA) Congress in Toronto, the 9th European Conference on Health Economics (ECHE) in Zurich, the 2012 Applied Health Econometrics Symposium at the University of Leeds, the 2012 Netspar Conference on Health and Inequality in the Life-cycle in Rotterdam as well as participants of seminars at Universities of Barcelona, Leeds, Newcastle, Toronto and York for discussions and helpful comments. Data from the British Household Panel Survey were supplied by the Economic and Social Research Council Data Archive. Neither the original collectors of the data nor the Archive bear any responsibility for the analysis or interpretations presented in this manuscript.


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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  • Andrew M. Jones
    • 1
  • Audrey Laporte
    • 2
    • 3
  • Nigel Rice
    • 1
    • 4
  • Eugenio Zucchelli
    • 5
    Email author
  1. 1.Department of Economics and Related StudiesUniversity of YorkYorkUK
  2. 2.Institute for Health Policy, Management and EvaluationUniversity of TorontoTorontoCanada
  3. 3.Canadian Centre for Health EconomicsUniversity of TorontoTorontoCanada
  4. 4.Centre for Health EconomicsUniversity of YorkYorkUK
  5. 5.Division of Health ResearchLancaster UniversityLancashireUK

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