Short‐run marginal medical costs from booze and butts: Evidence from the states

Abstract

This article uses a panel data set of U.S. states over the 1980 to 2007 period to estimate the demands for medical care, cigarettes, and beer. The estimation process generates own‐price, income, and cross‐price elasticities for all three goods. Implied per capita beer and cigarette consumption elasticities of per capita health care expenditures, suggested by our baseline estimates, are 0.83 and 0.14, respectively. These results are robust to a number of specification tests. Simulations suggest that yearly marginal medical costs amount to approximately $12 per bottle and 27 cents per cigarette in the short run (in 2012 dollars). These results are likely to be driven by the much larger corresponding increases in the consumption of binge drinkers and heavy smokers. Bank of bad habitsThe price of vice foretoldOne by one they'll do you inThey're bound to take their tollThe wrong thing is the right thing until you lose controlI've got this bank of bad habitsIt's worth its weight in gold