On Habits and Addictions

According to the Becker-Murphy model, the consumption of a habitual good follows from forward-looking, maximizing, and time consistent choices on the basis of specific preferences. The ongoing use of such a good builds up a stock of consumption capital which, in turn, affects both its present and future use. Starting from these ideas and some empirical facts about addictive behavior, we assume, in contrast to Becker and Murphy, that more consumption capital may trigger a stronger impatience. This endogenization of time preferences allows an integrative analysis of addictive behavior (stock-dependent time preferences) and habitual behavior (limit case of constant time preferences) which reproduces and refines results from other economic models. And, it yields various new predictions which correspond to previously neglected findings from addiction research. The time preference endogenization also rationalizes results from recent experiments on habitual consumption and explains observed consumption patterns in the controversial Swiss National Project on the Medical Prescription of Narcotics