Individual behaviour and tobacco consumption: A panel data approach

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Abstract
This paper considers estimators of tobacco demand equations using Becker and Murphy's model of addiction with a complete panel of households for Spain. With these tools, we face two main problems: first, the endogeneity of past and future consumption and, second, the limited-dependent variable. To control these problems simultaneously is difficult and we proceed to confront them separately. We follow an instrumental variable approach (which also allows us to control for measurement errors in variables and non-independent effects) to tackle the first and we use a consistent within-group procedure to obtain the parameter vector of the structural form, once we have estimated T-Tobit models for the reduced form in order to deal with the limited-dependent variable problem.