Do young adults substitute cigarettes for alcohol? Learning from the master settlement agreement
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Although real alcohol prices have plummeted over the last two decades, cigarette prices have increased substantially, especially after the Master Settlement Agreement (MSA) in 1998. I study the effect of increases in cigarette prices following the MSA on alcohol consumption among 18- to 24-year olds to determine the economic relationship between cigarettes and alcohol among young adults. I perform analyses at both the conditional mean and quantiles and find that increases in cigarette prices reduce drinking participation among young adults at the extensive margin. However, conditional upon one’s decision to drink, higher cigarette prices increase alcohol consumption. Such a pattern of substitution is concentrated between the 40th and 50th conditional quantiles. The results suggest that caution should be exercised when considering cigarettes and alcohol as complements.
KeywordsCigarettes and alcohol Substitute Complements
I would like to thank David Jacho Chavez, Andrew Francis-Tan, Sara Markowitz, and Hugo Mialon for their extremely helpful comments and suggestions. I am grateful for helpful comments from the seminar participants at the Department of Economics at Emory, the Western Economic Annual Conference, and the Department of Economics at Towson University. I would like to express my sincere gratitude to Anne Hannusch, Otto Lenhart, and Jethro Shrestha for their helpful comments and support. I take full responsibility for any remaining errors and lack of clarity.
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