The aim of this study is to construct a model o f the demand for the commodity "good health." The central proposition o f the model is that health can be viewed as a durable capital stock that produces an output o f healthy time. It is assumed that individuals inherit an initial stock o f health that depreciates with age and can be increased by investment. In this framework. the "shadow price" of health depends on many other variables besides the price of medical care. It is shown that the shadow7 price rises with age i f the rate of depreciation on the stock of health rises over the life cycle and falls with education i f more educated people are more efficient producers o f health. O f particular importance is the conclusion that, under certain conditions, an increase in the shadow, price may simultaneously reduce the quantity o f health demanded and increase the quantity of medical care demanded.

AN EMPIRICAL ANALYSIS OF CIGARETTE ADDICTION AZ S TRACTWe use a framework suggested by a model of rational addiction to analyze empirically the demand for cigarettes. The data consist of per capita cigarettes sales (in packs) annually by state for the period 1955 through 1985. The empirical results provide support for the implications of a rational addiction model that cross price effects are negative (consumption in different periods are complements), that long-run price responses exceed short-run responses, and that permanent price effects exceed temporary price effects. A 10 percent permanent increase in the price of cigarettes reduces current consumption by 4 percent in the short run and by 7.5 percent in the long run. In contrast, a 10 percent increase in the price for only one period decreases consumption by only 3 percent.In addition, a one period price increase of 10 percent reduces consumption in the previous period by approximately .7 percent and consumption in the subsequent period by 1.5 percent.These estimates illustrate the importance of the intertemporal linkages in cigarette demand implied by rational addictive behavior.

This paper examines the factors that may be responsible for the 50% increase in the number of obese adults in the US since the late 1970s. We employ the 1984-1999 Behavioral Risk Factor Surveillance System, augmented with state level measures pertaining to the per capita number of fast-food and full-service restaurants, the prices of a meal in each type of restaurant, food consumed at home, cigarettes, and alcohol, and clean indoor air laws. Our main results are that these variables have the expected effects on obesity and explain a substantial amount of its trend.