The effects of macro-level interventions on addictive behavior

Drug addictions are often viewed as compulsive behaviors, not sensitive to the typical rules of self-discipline or market forces. Nonetheless, many governments try to discourage consumption of addictive substances through macro policy tools, such as taxation, regulation and prohibition, in an effort to reduce the harmful consequences that result from their consumption. The government's ability to discourage this type of behavior through these macro policies depends critically on the responsiveness of addictive consumption to market interventions. This paper reviews the growing literature that applies economic principles to the analysis of "substance abuse." Specifically, we review the impact of prices and public policies on the demands for tobacco, alcohol, and illicit drugs. The findings from these studies clearly demonstrate that even addictive behaviors are sensitive to changes in the price of substances being abused. When the full price of the addictive good rises, consumption of that good falls, even among abusers. Therefore, public policies that raise the full price of a drug to a consumer, particularly youth, are likely to result in long run reductions in rates of addiction.