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ABSTRACT:
Prior economic research provides mixed evidence on the impact of cigarette prices on youth smoking. This paper empirically tests the effects of various price measures on youth demand for cigarettes using data collected in a recent nationally representative survey of 17,287 high school students. In addition to commonly used cigarette price measures, the study also examined the effect of price as perceived by the students. This unique information permits the study of the effect of teen-specific price on cigarette demand. The analysis employed a two-part model of cigarette demand based on a model developed by Cragg (1971) in which the propensity to smoke and the intensity of the smoking habit are modeled separately. The results confirm that higher cigarette prices, irrespective of the way they are measured, reduce youth cigarette smoking. The split of the price effect on smoking probability and on smoking intensity depends on the price measure used in the model. The largest impact on cigarette demand has the teenspecific, perceived price of cigarettes.