The rational addiction model is usually tested by estimating a linear second-order difference Euler equation, which may produce unreliable estimates. We show that a linear first-order difference equation is a better alternative. This empirical specification is appropriate under the reasonable...

We propose a model of addictive consumption to study the demand for imperfect substitutes involving substances like alcohol, nicotine and opioids, as well as behavioral addictions like gambling and digital addiction. We study a 2017 Italian policy aimed at reducing gambling by limiting the...