Price responsiveness of demand for cigarettes: does rationality matter?

Meta-analysis is applied to aggregate-level studies that model the demand for cigarettes using static, myopic, or rational addiction frameworks in an attempt to synthesize key findings in the literature and to identify determinants of the variation in reported price elasticity estimates across studies. The results suggest that the rational addiction framework produces statistically similar estimates to the static framework but that studies that use the myopic framework tend to report more elastic price effects. Studies that applied panel data techniques or controlled for cross-border smuggling reported more elastic price elasticity estimates, whereas the use of instrumental variable techniques and time trends or time dummy variables produced less elastic estimates. The finding that myopic models produce different estimates than either of the other two model frameworks underscores that careful attention must be given to time series properties of the data.