The Economics of Alcohol Addiction

This paper considers issues relating to alcohol addiction from an economic perspective. While alcohol consumption may be associated with dependency, it is not clear how addiction should be interpreted in the framework of consumer theory. The paper presents several economic models of addictive behaviour and identifies their deficiencies in explaining addiction to alcohol The degree of a person's involvement in heavy alcohol consumption is shown to have multiple interacting determinants. Behaviour which is viewed as optimal at one stage of the lifecycle may change the households future production possibilities in terms of costs and human capital stocks in a way that does make an individual better off by following an addictive consumption path, given these constraints. However, at the same time, the same person may regret past choices. This paper represents the first step in developing an economic model of alcohol consumption that can help explain drinking behaviour over the lifecycle as an accumulation of choices, subject to constraints.