Rationally Risking Addiction: A Two-Stage Approach

Kuhn, M. & Wrzaczek, S. (2021). Rationally Risking Addiction: A Two-Stage Approach. In: Dynamic Economic Problems with Regime Switches. Eds. Haunschmied, J.L., Kovacevic, R.M., Semmler, W., & Veliov, V.M., pp. 85-110 Springer. ISBN 978-3-030-54575-8 10.1007/978-3-030-54576-5_4.

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Abstract

We extend the Becker-Murphy rational addiction model to account for a period before the onset of addiction. While during the first stage of recreational consumption of the addictive good does not imply negative effects, the second stage is analogous to the classical Becker-Murphy model. In line with neurological research, the onset of addiction is a random event positively related to the past consumption of the addictive good. The resulting multistage optimal control model with random switching time is analyzed by way of a transformation into an age-structured deterministic optimal control model. This enables us to analyze in detail the anticipation of the second stage, including the possible emergence of a Skiba point. A numerical example demonstrates that it is optimal to stop consuming the addictive good in case of an early onset (i.e. at a low level of cumulative consumption) of addiction. A late onset tends to lead into long-run addiction.

Item Type:	Book Section
Research Programs:	Economic Frontiers (EF)
Depositing User:	Luke Kirwan
Date Deposited:	24 Sep 2024 10:12
Last Modified:	24 Sep 2024 10:12
URI:	https://pure.iiasa.ac.at/20000

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