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In this paper, we study the ability of the 19th-century Italian government to choose profit maximizing prices for a multiproduct monopolist. We use very detailed historical data on the tobacco consumption in 62 Italian provinces from 1871 to 1888 to estimate a differentiated product demand system. The demand conditions and the legal environment of the period made this market as close to a textbook monopoly as is practically possible. The government’s stated aim for this industry was profit maximization: since at the time profits from tobacco were close to 10% of the revenues for the cash-strapped government, the stated aim was very likely the true one. Our empirical application uses historical price and cost data, and suggests that the government was not wide off the mark: the tobacco prices were ‘not far’ from those dictated by the multiproduct monopoly formulae for profit maximization with interdependent demand functions.

This article develops a formal model of spontaneous recovery from pathological addiction. It regards addiction as a progressive susceptibility to stochastic environmental cues and introduce a cognitive appraisal process in individual decision making depending on past addiction experiences and on their future expected consequences. This process affects consumption choices in two ways. The reward from use decreases with age. At the same time, cognitive incentives emerge that reduce the probability of making mistakes. In addition to modeling the role of cue-triggered mistakes in individual decision making, the analysis highlights the role of other factors such as subjective self-evaluation and cognitive control. The implications for social policy and for the treatment of drug and alcohol dependence are discussed.

In this paper we study the ability of the 19-th century Italian government to choose profit maximising prices for a multiproduct monopolist. We use very detailed historical data on the tobacco consumption in 62 Italian provinces from 1871 to 1888 to estimate a differentiated product demand system. The demand conditions and the legal environment of the period made this market as close to a textbook monopoly as is practically possible. The government’s stated aim for this industry was profit maximisation: since at the time tobacco revenues constituted between 10 and 15 percent of the revenues for the cash-strapped government, the stated aim was very likely the true one. Cost data for the nine products suggest that the government was not wide off the mark: the tobacco prices were “not far” from those dictated by the standard monopoly formulae for profit maximisation with interdependent demand functions.

This article estimates expenditure-dependent equivalence scales for Italian couples with and without children. Following Donaldson and Pendakur (2006), the generalised absolute equivalence-scale exactness (GAESE) restrictions are incorporated into a translated quadratic almost ideal demand system. We obtain declining-with-expenditure equivalence scales, a pattern that tends to strengthen when the number of children increases. Thus, scale economies in current consumption are lower for families with poor expenditure capacities. We also show that families living in the South bear a substantial additional cost to achieve the same well-being of those living in the North. Finally, we find that ignoring the declining with expenditure pattern may involve a relevant understatement of measured inequality.

In this work the welfare effects and the distributive impact on Italian households of the Italian Carbon tax are calculated. The Carbon tax has been introduced in Italy at the beginning of 1999 asking for smooth increases, over a number of years, in the prices of most fossil fuels. Its welfare effects have been calculated using True Cost of Living index numbers and the Compensating Variation. The parameters have been obtained through estimation of a complete Almost Ideal demand system, using households data from 1985 to 1996. The welfare loss turns out to be quite substantial and affects Italian households in a non-negligible way, but the distribution of welfare losses across different levels of total monthly expenditures does not allow sustaining the regressivity of Carbon taxation, as the effect becomes bigger as we move up the income distribution. This evidence might encourage the use of Carbon taxes, at least in the transport sector, as cost-effective instruments of environmental policy, especially after the ratification of the Kyoto Protocol on Climate Change.

The paper explores the role of Environmental Defensive Expenditures in the consumption behaviour of Italian households. Environmental Defensive Expenditures are not borne to increase households' welfare, but to prevent or avoid the effects of a worsening environmental quality. The literature on environmental accounting argues that economic growth in industrialized countries is accompanied by an increasing load of defensive activities that may lead to a reorientation of consumption behaviour. In this work this hypothesis is tested using annual data on mean consumption expenditures of Italian households from 1985 to 1996. A complete system of demand is estimated and short-run price elasticities of demand for Defensive Expenditures are calculated. The complete system of demand functions is specified using the Quadratic Almost Ideal Demand System proposed by Banks, Blundell and Lewbel. Results show that there is very low substitution between the demand for the six aggregate goods in which total expenditure is...

This paper adopts a multi-commodity habit formation model to study whether unhealthy behaviors are related, i.e. whether there are contemporaneous and inter-temporal complementarities between alcohol and tobacco consumptions in Italy. To this aim time series data of per-capita expenditures and prices during the period 1960 to 2002 are used. Own price elasticities are negative and tobacco appears to be more responsive than alcohol demand, although both responses are less than unity. Cross price elasticities are also negative and asymmetric thus suggesting complementarity. A “double dividend” could then be exploited, because public policy needs to tackle the consumption of only one good to control the demand of both. These results show that the optimal strategy for maximizing public revenues would be to raise alcohol taxation more than tobacco taxation. Finally, past consumption of one addictive good does not significantly reinforce current consumption of the other.

We estimate tobacco demand in Italy following the rational addiction framework. Two empirical tests are performed. The first uses a pseudo panel of data and follows the approach of Baltagi and Griffin. We obtain evidence of forward-looking behavior but implausible estimates of the discount rate. The second uses a time series of per capita tobacco expenditures. In this case the data support the theory. A simulation is also carried out to assess the effects of future permanent price changes on tobacco demand. The novelty here is that expected future consumption is estimated by ordinary least squares using past and future prices as regressors instead of taking actual consumption as is usually the case in empirical tests of the rational addiction model. Results show that announcements of future price changes may be effective in curbing tobacco demand.

Since the end of the eighties the Becker and Murphy model of rational addiction has been the dominant approach to estimate addiction effects. A rational addictive consumer, a smoker for instance, is supposed to maximize over the life cycle a stable utility function and to be fully aware of the future consequences of her addiction and chooses to be an addicted because she evaluates the benefits of addiction to be greater than its full costs. It follows that public policy should not interfere with such fully rational behaviour. On the other hand, the additional public health care costs smokers impose on non smokers could be internalised using price mechanisms, as the long run price elasticity of demand is supposed to be significantly higher than the short run one. This work tries to assess, through a review of the literature, whether the idea of rational addiction is robust, with a focus on smoking behaviour.

We simulate the welfare effects of the Carbon-Energy Tax introduced in Italy at the beginning of 1999 which asks for smooth increases, over a number of years, in the prices of most fossil fuels. The welfare effects have been calculated using True Cost of Living index numbers and their parameters have been obtained through estimation of a demand system, using households-data from 1985 to 1996. The welfare loss at the aggregate level turns out to be quite substantial and affects Italian households in a non-negligible way, but the distribution of welfare losses across different levels of total monthly expenditures does not allow sustaining the regressivity of Carbon taxation, as the effect becomes bigger as we move up the income distribution. This evidence might encourage the use of Carbon Taxes as cost-effective instruments of environmental policy, especially after the recent negotiations on Climate Change. However, other important implications of Carbon taxation such as those on competitiveness and the environmental impact are not assessed in this study.