A Binary-Ordered Probit Model of Cigarette Demand

This study analyzes the demand for cigarettes …tting observed zero outcomes with a trivariate model consisting of an equation for the starting smoking decision, an equation for the quitting decision, and an equation that models the level of cigarettes consumed. Five competing speci…cations are considered to explain level, with the ordered probit, which accommodates pile-ups of counts in the dependent variable, providing the best …t. Marginal e¤ects of explanatory variables are calculated providing strong evidence of race and gender di¤erences in consumption patterns. The estimated marginal e¤ects are robust to alternative categorizations of the level of cigarettes. Selected Paper prepared for presentation at the American Agricultural Economics Association Annual Meeting, Portland, OR, July 29-August 1, 2007. Copyright 2007 by Panagiotis P. Kasteridis, Murat K. Munkin and Steven T. Yen. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies.