Quantity Limits on Addictive Goods

TL;DR

This paper extends economic models of addiction by allowing endogenous consumption choices and analyzes how quantity limits impact societal welfare, showing that stricter limits can be beneficial if they do not restrict optimal consumption levels.

Contribution

It introduces an enriched model of addiction with endogenous consumption choices, providing new insights into the welfare effects of quantity limits.

Findings

Stricter quantity limits can improve welfare.

Welfare gains depend on not restricting the myopically optimal consumption.

The model bridges gaps in current economic theories of addiction.

Abstract

Addiction is a major societal issue leading to billions in healthcare losses per year. Policy makers often introduce ad hoc quantity limits-limits on the consumption or possession of a substance-something which current economic models of addiction have failed to address. This paper enriches Bernheim and Rangel (2004)'s model of addiction driven by cue-triggered decisions by incorporating endogenous choice of how much of the addictive good to consume, instead of just whether or not consumption happens. Stricter quality limits improve welfare as long as they do not preclude the myopically optimal level of consumption.