Brian S. Ferguson

Interpreting the rational addiction model

The rational addiction (RA) model of Becker and Murphy (Becker GS, Murphy KM. A theory of rational addiction. J Pol Econ 1988; 96(4): 675-700) has rapidly become one of the standard models in the literature on addictive behaviour. This paper reviews some theoretical issues surrounding its use, and indicates areas in which caution should be used in applying this model.

CAN ALCOHOL PRICE POLICIES BE USED TO REDUCE DRUNK DRIVING? EVIDENCE FROM CANADA*

Drunk driving is one of the more serious negative consequences of alcohol consumption. Since consumption of alcohol is sensitive to the price of alcohol, and the occurrence of drunk driving is sensitive to the level of alcohol consumption, the possibility exists for alcohol pricing policie to be used to reduce drunk driving in the population. This paper reviews the evidence on this possibility in the literature and adds results based on data from the Canadian province of Ontario. Multiple regression analysis of time series data for Ontario from 1972 to 1990 indicate that, controlling for income, the proportion of young males in the population, changes in the minimum drinking age, and other confounding variables, increasing the price of alcohol has a significant effect in reducing alcohol-related motor vehicle accidents (elasticity = −1.2, p <. 05) and alcohol-related traffic offenses (elasticity = −0.50, p <. 05). Overall, the evidence strongly supports the view that alcohol tax and pricing policies can be used to reduce the extent of drunk driving. [Translations are provided in the International Abstracts Section of this issue.]

Income inequality and mortality: time series evidence from Canada

In this paper, we apply the standard model used in the income strand of the socio-economic status (SES)-population health literature to explain the relationship between mortality and income to pooled cross-section time-series data for Canada. The use of time-series data increases the available degrees of freedom and allows for the possibility that the effects of inequality take time to translate into poorer health outcomes. In light of recent criticisms of aggregate level studies, we do not attempt to differentiate between the absolute and relative inequality hypotheses, but test for the existence of a relationship between mortality and a measure of income inequality. We find that whether an exogenous trend is incorporated or an auto-regressive distributed lag form is used, the coefficients on mean income and the Gini are not significantly different from zero, which contradicts the findings in other parts of the literature, but which is consistent with earlier cross-section evidence for Canada. The results suggest that models that focus exclusively on income as a measure of the impact of SES on mortality are not complete and that health spending and unemployment may be even more important than income growth and dispersion.

The quantile regression approach to efficiency measurement: insights from Monte Carlo simulations

In the health economics literature there is an ongoing debate over approaches used to estimate the efficiency of health systems at various levels, from the level of the individual hospital - or nursing home - up to that of the health system as a whole. The two most widely used approaches to evaluating the efficiency with which various units deliver care are non-parametric data envelopment analysis (DEA) and parametric stochastic frontier analysis (SFA). Productivity researchers tend to have very strong preferences over which methodology to use for efficiency estimation. In this paper, we use Monte Carlo simulation to compare the performance of DEA and SFA in terms of their ability to accurately estimate efficiency. We also evaluate quantile regression as a potential alternative approach. A Cobb-Douglas production function, random error terms and a technical inefficiency term with different distributions are used to calculate the observed output. The results, based on these experiments, suggest that neither DEA nor SFA can be regarded as clearly dominant, and that, depending on the quantile estimated, the quantile regression approach may be a useful addition to the armamentarium of methods for estimating technical efficiency.

Economic Modeling of the Rational Consumption of Addictive Substances

This article gives an overview of the way economists model the decision to consume addictive commodities and reviews some of the relevant literature testing aspects of the model. It aims to answer the question of how it is that economists can speak of the consumption of addictive harmful commodities as a rational decision. Health economics treats the consumption of commodities that have beneficial (or harmful) effects on health, and therefore on utility or well-being, as intertemporal decisions with regard to investment decisions. In investment in health, the payoff to an action comes appreciably later than the action itself. The decision to consume harmful, and even addictive, commodities fits into the investment in health framework, with the benefit comes now, in the form of the pleasure derived from consuming them, and the costs, in terms of damage to the individuals health, comes later. The value that a person places on the future vs. the present is called time preference or subjective rate of time discounting, which represents the weight he places on the future relative to the present when he makes decisions that have future consequences. The more they discount the future, the more myopic they are and the more likely to undertake risky behaviors, including smoking or using drugs such as amphetamines or heroin, as well as dropping out of school or taking on high risk jobs.

Risky Behavior in Youth: An Analysis of the Factors Influencing Youth Smoking Decisions in Canada

This article considers smoking behavior among young people in Canada, looking in particular for evidence on why young people take up smoking. Using data from the National Population Health Survey, we find that reported knowledge about the health effects of own smoking is less useful than might have been expected in explaining why some young people smoke but that responses to a question about whether people worry too much about the health effects of second-hand smoke is informative. We also find that for subjects too young to have begun their own household formation, the number of people in their household who regularly smoke in the house is an informative variable. In particular, among young people aged 12–14 years, having a household member who regularly smokes inside the house (as opposed to having none) increases the probability that the young person will smoke by 2%, whereas for the those aged 15–19, having a household member who regularly smokes inside the house increases the probability that the young person will smoke by 18%.

Physician objectives and resource allocation

This paper examines the theoretical incentives affecting physicians input use in the case of fee-for-service practice. It establishes that while the price taking physician, acting as a utility maximizer, may use inputs relating to his own time efficiently, he may not be efficient in his use of other inputs.

Supplier–induced demand: a disequilibrium test

This paper tests the hypothesis of market disequilibrium and supplier–induced demand in the market for physicians services using Canadian data from the period prior to the introduction of National Health Insurance. The results support the hypothesis of disequilibrium, with rapid upward adjustment of fees in the face of excess demand and extremely slow downward adjustment of fees in response to excess supply. They do not support the hypothesis that physicians induced demand in the face of an excess supply of services.

Is addiction a failure of rationality

This note argues that addiction itself can be seen as a form of double failure, specifically the failure to stick to a predetermined optimal lifetime consumption path for an addictive commodity, which failure might be the result of bad luck, and the failure to adjust the level of consumption of the addictive commodity once the consumer is off their optimal path, which might be seen as a failure of judgment.

Is community-based treatment an add-on or a substitution for hospital treatment of alcoholism? Some evidence from Canada.

OBJECTIVES This study determined whether the development of community treatment of alcohol problems acted as an add-on or a substitution for the utilization of inpatient hospital services in Ontario. METHODS Complex modelling and graphic analyses using econometric multiple regression techniques were performed on data for the 48 counties of Ontario (Canada) for the period 1972 to 1988, combining both cross-sectional and time series analysis. RESULTS After controlling for differences in alcohol consumption, in health care characteristics such as the supply of physicians or hospital occupancy rates, and in socioeconomic characteristics of the population, when community treatment became available, hospital utilization for the treatment of alcohol problems decreased and community services were substituting for hospital treatment. In addition, nonresidential services had an overall greater importance in producing this effect (elasticities at the mean of -0.11 to -0.14 depending on the region) than community-based residential treatment. The effect was larger in the southern than in the northern counties of Ontario. Testing of the modelling techniques showed statistically significant and satisfactory modelling of the forces at work. CONCLUSIONS Where community-based treatment was available, it was used in preference to inpatient hospital treatment; however, there may be a slightly more complex relationship present in the southern urban counties (which contain the larger metropolitan areas) than in the northern and southern rural counties..