Taxes, cigarette consumption and smoking intensity

This paper analyses the compensatory behavior of smokers. Exploiting data on cotinine concentration a metabolite of nicotine measured in a large population of smokers over time, we show that smokers compensate tax hikes by extracting more nicotine per cigarette. Our study makes two important contributions. First, as smoking more intensively a given cigarette is detrimental to health, our results question the usefulness of tax increases. Second, we develop a model of rational addiction where agents can also adjust their intensity of smoking and we show that the previous empirical results suffer from severe estimation biases.