Essays on Addiction, Myopia, and Inconsistency




Yoon, SangHo

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Chapter 1: The standard theory of intertemporal choice provides a simple but elegant way to analyze how an individual consumes over time. Addiction, however, is documented as one of numerous anomalies that the standard theory fails to explain. The models of habit-forming and compulsive consumptions have been suggested as the economic ways to analyze addiction. The first aim of this paper is to outline the economics of addiction as two approaches where each concerns different aspects of stationarity assumed in the standard theory; stationarity in the set of instantaneous preferences and in the system of intertemporal preferences. The former highlights the endogenous mechanics under which instantaneous preference evolves over time, while the latter emphasizes the relative difference in evaluating the trade-off among intertemporal preferences. While two approaches are typically viewed as distinctive, my review suggests otherwise. The second aim of this paper is to show that two seemingly contrasting approaches have a common interest of understanding the manner in which preferences are arranged over time and, in consequence, leads to addiction. In particular, I show that the model of habit-formation can be easily modified to describe compulsive consumption predicted by the intertemporal model with the hyperbolic discounting. I also suggest that the insights of the economics of addiction shed new light to the social welfare analysis with interpersonal inconsistence and dependence and the gateway effect of addiction development. Chapter 2: I consider a seemingly simple extension of the theory of rational addiction. In particular, this paper relaxes a critical assumption in rational addiction that the habit is ‘commodity-specific.’ A habit is called commodity-specific when (1) a habit is accumulated by a specific consumption and (2) the marginal rate of substitution of a consumption for a habit depends only on a particular pair of consumption and habit. By allowing the non-commodity-specificity, I study multiple addictions and find that contemporaneous relation among consumptions alters their addictiveness. The condition of rational addiction with the non-commodity-specificity shows that when a rational individual is addicted to multiple commodities, the concept of adjacent complementarity extends hierarchically to what I call ‘gross adjacent complementarity.’ I also find that the gateway effect exists when drugs are substitutes and an increase in the price of a gateway drug has the deterrent and migrant effects to other drugs, ascribable to the income and substitution effects. Chapter 3: Recent efforts by economists have shown some success in researching religion-related behaviors in individual, group, and cultural level. How religion may affect substance use is an area where such efforts have been relatively at minimal, while the literature in sociology, psychology, and medicine has recognized a general stylized fact of the negative relationship between religion and substance use. This paper reviews a large literature in sociology, psychology, and medicine that notes a clear negative relationship between religion and substance use. To explain the relationship between the two, this paper relies on the rational addiction explanation on three features of harmful addiction. First, as the consumption capital from substance use is dissipated by religious practice, current substance use is much less enforced from past use. Second, as the satisfaction gap between a given level of substance use in past and today becomes narrower, higher level of past substance use leads to much less loss in the utility from current substance use. And third, the reduction or interruption in current substance use does not result in the reduction in utility. As the increase in religious practice causes three effects, an individual chooses to reduce substance use.



Addiction, Myopia, Habit-Formation, Time-Inconsistency