The demand for tobacco in post-unification Italy

Abstract

This paper studies the demand for tobacco products in post-unification Italy. We construct a very detailed panel dataset of yearly consumption in the 69 Italian provinces from 1871 to 1913, and use it to estimate the demand for tobacco products. We find support for the Becker and Murphy (1988) rational addiction model. The empirical analysis further suggests that, in the period considered, tobacco was a normal good in Italy: its consumption increased with income. Subsequently, we consider separately the components of aggregate tobacco (fine-cut tobacco, snuff, cigars, and cigarettes), and tentatively suggest that habit formation was a stronger factor on the persistence of consumption than physical addiction. The paper ends by showing that the introduction of the Bonsack machine in the early 1890s did not coincide with changes in the structure of the demand for tobacco, suggesting cost driven technological change. Abstract This paper studies the demand for tobacco products in post-unification Italy. We construct a very detailed panel dataset of yearly consumption in the 69 Italian provinces from 1871 to 1913, and use it to estimate the demand for tobacco products. We find support for the Becker and Murphy (1988) rational addiction model. We also find that, in the period considered, tobacco was a normal good in Italy: aggregate tobacco consumption increased with income. Subsequently, we consider separately the four types of products which aggregate tobacco comprises (fine-cut tobacco, snuff, cigars, and cigarettes), and tentatively suggest that habit formation was a stronger factor on the persistence of consumption than physical addiction. The paper ends by showing that the introduction of the Bonsack machine in the early 1890s did not coincide with changes in the structure of the demand for tobacco, suggesting cost driven technological change.JEL Numbers: D11, N33, I18

Price elasticity of demand of non-cigarette tobacco products: a systematic review and meta-analysis

“…Seventeen studies reported price elasticity estimates for smokeless tobacco, of which 13 were from high-income countries (Italy, Sweden and USA). The median own-price elasticity was −0.2 (−0.5, 0.0) for quantity consumed, 21–232638–42 −0.3 (−0.6, 0.0) for participation 3943–46 and −0.1 (−0.2, 0.0) for intensity among users. 3946 The median cross-price elasticity with respect to cigarettes was −0.7 (−0.8, 1.0) for quantity consumed, 21–232638–42 0.1 (−0.8, 1.0) for participation 43–46 and −0.4 for intensity among users.…”

“…Price increases for non-cigarette tobacco products should exceed increases in income because several studies have shown that increasing income results in increased non-cigarette tobacco use. 192639 However, a greater number of studies, all from high-income countries, have shown the inverse that increases in income may reduce demand for non-cigarette tobacco products. 34–3642–45 Further research is required to drive forward these policies, particularly as non-cigarette tobacco products are often overlooked in the tobacco research and policy discourse.…”

A comprehensive examination of own- and cross-price elasticities of tobacco and nicotine replacement products in the U.S.

“…For example, while some studies found that the demand for smokeless tobacco may be as responsive to price as cigarettes,(Chaloupka et al, 1997; Da Pra and Arnade, 2009; Dave and Saffer, 2013; Nguyen et al, 2012; Oshfeldt and Boyle, 1994; Zheng et al, 2017, 2016) other studies indicated that their price elasticities were smaller than that of cigarettes. (Bask and Melkersson, 2003; Ciccarelli and Fraja, 2014; Cotti et al, 2016; Kostova and Dave, 2015; Ohsfeldt et al, 1998, 1997; Tauras et al, 2007) For cigars and little cigars, several studies found very different price elasticity estimates, ranging from −0.05 to −3.17. (Da Pra and Arnade, 2009; Zheng et al, 2017, 2016; Ciccarelli and Fraja, 2014; Gammon et al, 2015; Ringel et al, 2005; Escario and Molina, 2004; Lee et al, 2005; Pekurinen, 1989) Similar mixed results were found for RYO tobacco and loose leaf tobacco as well, with estimates ranging from −0.04 to −0.91.…”

“…(Bask and Melkersson, 2003; Ciccarelli and Fraja, 2014; Cotti et al, 2016; Kostova and Dave, 2015; Ohsfeldt et al, 1998, 1997; Tauras et al, 2007) For cigars and little cigars, several studies found very different price elasticity estimates, ranging from −0.05 to −3.17. (Da Pra and Arnade, 2009; Zheng et al, 2017, 2016; Ciccarelli and Fraja, 2014; Gammon et al, 2015; Ringel et al, 2005; Escario and Molina, 2004; Lee et al, 2005; Pekurinen, 1989) Similar mixed results were found for RYO tobacco and loose leaf tobacco as well, with estimates ranging from −0.04 to −0.91. (Cornelsen and Normand, 2014; Da Pra and Arnade, 2009; Mindell and Whynes, 2000; Tait et al, 2015; White and Ross, 2015) Studies that examined the price elasticity of e-cigarettes found that the demand of e-cigarettes, particularly disposable e-cigarettes, was generally price sensitive, with estimated price elasticity in the range of −0.78 to −2.1.…”

What Can We Learn about Smoking from 150 Years of Italian Data?

“…Ciccarelli (2012) describes the relevant historical sources and provides statistical reconstructions of annual regional tobacco consumption in both physical and monetary terms from 1871 to 1913. Ciccarelli and De Fraja (2014) estimate the demand for tobacco in post-unification Italy using annual data at the provincial level, while Ciccarelli and Elhorst (2017) estimate a spatial dynamic panel data model of early cigarettes diffusion in Italy.…”