Lighting the Fires: Explaining Youth Smoking Initiation and Experimentation in the Context of a Rational Addiction Model with Learning

This paper examines the dynamics of youth smoking behavior using a model of rational addiction with learning. Individuals in the model face uncertainty regarding the parameters that determine their utility from smoking. Through experimentation, individuals learn about how much they enjoy smoking cigarettes as well as the effects of reinforcement, tolerance, and withdrawal. The addition of learning to the dynamic optimization problem of adolescents provides an explanation for the experimentation of the non-smoker. I estimate the parameters of the model using data from the National Longitudinal Survey of Youth 1997 and compare the overall fit of the model to the model without learning. The estimated model is also used to analyze the effect of cigarette taxes and anti-smoking policies. I find that the model with learning is better able to fit the observed data and that cigarette taxes are not only effective in reducing the level of youth smoking, but can even increase total welfare. JEL Classification: I12, D83, D12, C61, C63