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In this paper I unify the economic theories of addiction and health deficit accumulation and develop a life cycle theory in which individuals take into account the fact that the consumption of addictive goods reduces their health and longevity. I distinguish two types of addiction: perfect and...
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with recursive utility, as well as health-dependent income and mortality risk. Our estimates of the deep parameters … highlight the importance of health capital, mortality risk control, convex health and mortality adjustment costs and binding …
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in a Monte Carlo experiment. The proposed method is applied to the estimation of a cigarette demand function …
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