Testing for the Rational Addiction Hypothesis in Turkish Cigarette and Alcohol Consumption

Abstract

In this study, the relationship between simultaneous and intertemporal cigarette and alcohol consumptionfor Turkey is analyzed using GMM in the context of the Rational Addiction Model for the 1994-2016 period.Firstly, the demand of alcohol and that of cigarettes are estimated separately in the study. According to theresults of the analysis, alcohol and cigarette demand are both in accordance with the Rational AddictionModel. The price elasticity of demand for both substances is negative. It is also found that the demand foralcohol is more elasticated than that for cigarettes. In addition, the cross-price elasticities are not statisticallysignificant. Based on the results of this study, it is suggested that public policy combating these addictivesubstances be determined separately for these goods. Based on model results, the optimal strategy forincreasing the income of the government should be to increase the price of cigarettes prices rather than ofalcohol. Finally, no evidence is found indicating that the previous consumption of one of these substancesinfluences the current consumption of the other good.