Rational Addiction and Vanishing Time Preference Rate

We modify the model of rational addiction of G. Becker and K. Murphy 1988] by considering diminishing time preference rates. The model provides explanation for a number of stylized facts: The model explains that addictive good consumption is non-monotone over time (the addiction career) without breaking concavity of the preferences, that not all individuals get addicted, that the eeect of price on addictive behavior varies with age and past duration of consumption, that a shock price increase pools the population in a part which quits and the others remaining addicted and that the chance of restarting consumption of an addictive good decreases over time. The model further leads to insights into drug policy such as the controversial Swiss National Project on the Medical Prescription of Narcotics. Another consequence is that a policy based solely on price regulation is not able to reduce consumption of all addicts in a population but that other instruments are needed.