The importance of peer effects, cigarette prices and tobacco control policies for youth smoking behavior.

This paper expands the youth cigarette demand literature by undertaking an examination of the determinants of smoking among high school students incorporating the importance of peer effects and allowing cigarette prices (taxes) and tobacco control policies to have a direct effect and an indirect effect (via the peer effect) on smoking behavior. To control for the potential endogeneity of our school-based peer measure we implement a two-stage generalized least squares estimator for a dichotomous dependent variable and implement a series of diagnostic tests. The key finding is that peer effects play a significant role in youth smoking decisions: moving a high-school student from a school where no children smoke to a school where one quarter of the youths smoke is found to increase the probability that the youth smokes by about 14.5 percentage points. The results suggest that there is a potential for social multiplier effects with respect to any exogenous change in cigarette taxes or tobacco control policies.