“A Theory of Rational Addiction”, 1988-08 (; backlinks):
We [Gary Becker & Kevin M. Murphy] develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time.
Strong addiction to a good requires a big effect of past consumption of the good on current consumption. Such powerful complementarities cause some steady states to be unstable. They are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention.
Our theory also implies that “cold turkey” is used to end strong addictions, that addicts often go on binges, that addicts respond more to permanent than to temporary changes in prices of addictive goods, and that anxiety and tensions can precipitate an addiction.
…Fortunately, a separate theory is not necessary since rational choice theory can explain a wide variety of addictive behavior.
- §2 & §3 develop our model of rational addiction. They set out first-order conditions for utility maximization and consider dynamic aspects of addictive consumption. They derive conditions that determine whether steady-state consumption levels are unstable or stable. Unstable steady states are crucial to the understanding of rational addiction.
- §4 & §5 consider in detail the variables highlighted by the previous sections that determine whether a person becomes addicted to a particular good. These sections also derive the effects on the long-run demand for addictive goods of permanent changes in income and in the current and future cost of addictive goods.
- §6 shows that consumption of addictive goods responds less to temporary changes in prices than to permanent changes. In addition, the effects on future consumption of changes in current prices become weaker over time when steady-state consumption is stable, but they get stronger when the steady state is unstable. This section also shows how divorce, unemployment, and similar tension-raising events affect the demand for addictive goods.
- §7 indicates why strong rational addictions must terminate abruptly, that is, must require going “cold turkey.” Rational binges are also considered.
…We appear to be the first to stress the importance for addictions of unstable steady-state consumption levels, to derive explicit long & short-run demand functions for addictive goods, to show why addictions lead to abrupt withdrawals and binges, and to relate even temporary stressful events to permanent addictions.
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