@article{d3946e9c35834546b46af411100581c8,
title = "A MODEL OF ADDICTION AND SOCIAL INTERACTIONS",
abstract = "Many consumer behaviors are both addictive and social. Understanding how these two phenomena interact informs basic models of human behavior, and matters for policymakers when the behavior is regulated. I develop a new model of demand that incorporates both addiction and social interactions and show that, under certain conditions, social interactions reinforce the effects of addiction. I also show how the dynamics introduced by addiction can solve the pernicious problem of identifying the causal effects of social interactions. I then use the model to illustrate a new and important identification problem for studies of social interactions: existing estimates cannot be used to draw welfare conclusions or even to deduce whether social interactions increase aggregate demand. Finally, I develop a method that allows researchers to distinguish between two common forms of social interactions and draw welfare conclusions. (JEL D11, H20).",
author = "Julian Reif",
note = "Funding Information: ∗I thank Steven Durlauf, Ali Hortacsu, AnupMalani, and Derek Neal for guidance and support in writing this paper. I also thank Jason Abaluck, Gary Becker (in memoriam), David Bradford, Jeff Brown, Tatyana Deryugina, Hays Golden, Scott Kominers, Nolan Miller, and Gabriel Ulyssea for useful discussions and feedback. I am grateful to the National Science Foundation for financial support. Reif: Assistant Professor, Department of Finance, University of Illinois, Champaign, IL 61822; NBER. Phone 217-300-0169, E-mail jreif@illinois.edu 1. Prominent studies of addiction include Becker, Gross-man, and Murphy (1994), Chaloupka (1991), Crawford (2010), Demuynck and Verriest (2013), and Gruber and Koszegi (2001). A less than comprehensive list of social interactions studies includes the following. For theory, see Bernheim (1994), Bisin, Horst, and Ozgur (2006), Brock and Durlauf (2010), Ozgur, Bisin, and Bramoulle (2017), and Zanella (2007). Empirical analyses of social interactions have examined their effect on alcohol (Kremer and Levy 2008), crime (Glaeser, Sacerdote, and Scheinkman 1996), disadvantaged youth (Case and Katz 1991), grades (Sacerdote 2001), obesity (Blanchflower, Van Landeghem, and Oswald 2009; Christakis and Fowler 2007; Fortin and Yazbeck 2015), and smoking (Fletcher 2010; Krauth 2007; Powell, Tauras, and Ross 2005). Becker (1992) notes that addiction and social interactions can reinforce each other. Alessie and Kapteyn (1991) and Woittiez and Kapteyn (1998) estimate consumer demand and female labor supply, respectively, as a function of habit formation and preference interdependence. Publisher Copyright: {\textcopyright} 2018 Western Economic Association International",
year = "2019",
month = apr,
doi = "10.1111/ecin.12709",
language = "English (US)",
volume = "57",
pages = "759--773",
journal = "Economic Inquiry",
issn = "0095-2583",
publisher = "Wiley-Blackwell",
number = "2",
}