Using of economic models to determine factors influencing the consumption of alcohol and tobacco

This paper is concerned with the use of economic models in the debate about the role that tax increases and restrictions on advertising should play in reducing the health problems that arise the consumption of alcohol and tobacco. It is argued that properly specified demand models that take account of all the important factors that influence consumption are required, otherwise inadequate modelling may lead to misleading estimates of the effects of policy changes. The ability of economics to deal with goods such as alcohol and tobacco that have addictive characteristics receives special attention. Recent advances in economic theory, estimation techniques and statistical testing are discussed, as is the problem of identifying policy recommendations from empirical results.