Addiction and Social Interactions: Theory and Evidence

Julian Reif
2013 Social Science Research Network  
Many consumer behaviors are both addictive and social. Understanding how these two phenomena interact informs basic models of human behavior, and matters for policymakers when the behavior is regulated. I develop a new model of demand that incorporates both addiction and social interactions and show that, under certain conditions, social interactions reinforce the effects of addiction. I also show how the dynamics introduced by addiction can solve the pernicious problem of identifying the
more » ... entifying the causal effects of social interactions. I then use the model to illustrate a new and important identification problem for studies of social interactions: existing estimates cannot be used to draw welfare conclusions or even to deduce whether social interactions increase aggregate demand. Finally, I develop a method which allows researchers to distinguish between two common forms of social interactions and draw welfare conclusions. (JEL codes: D11, D12)
doi:10.2139/ssrn.2331654 fatcat:zc5kbhgjrzbr3iexeqmqanjbsm