The price elasticity of opium in Taiwan, 1914-1942

Between 1895 and 1945, the Japanese colonial government virtually eliminated opium use in Taiwan by licensing and treating existing users, prohibiting sales to others, and raising the price. We evaluate these policies using a two-part model to describe the fraction of the population using opium and consumption among users, and the rational addiction model by Becker et al. (1991). We confirm that opium is addictive and find no evidence supporting the rational addiction hypothesis. Demand is price-elastic with estimated short- and long-run demand elasticities of -0.48 and -1.38. These results have implications for control of other addictive substances.