Simon W. Bowmaker and Frank Heiland From the concept of a double-kinked demand curve to the theory of rational addiction, economics can provide signiﬁcant insights into the causes and consequences of illicit drug use. In 1890, British economist Alfred Marshall touched upon addictive behaviour in Principles of Economics: Whether a commodity conforms to the law of diminishing or increasing return, the increase in consumption arising from a fall in price is gradual; and, further, habits which have once grown up around the use of a commodity while its price is low are not so quickly abandoned when its price rises again. Phlips (1983) notes that with this statement Marshall captures the three fundamental aspects of addiction: physical response (tolerance), irreversibility (withdrawal) and positive eﬀects of habits (reinforcement). But most economists since Marshall have tended to view an addict as a myopic, imperfectly rational individual whose behaviour is not conducive to standard economic analysis. Thomas Schelling (1978), in describing a smoker who wishes to ‘kick the habit’, stated: Everybody behaves like two people, one who wants clean lungs and long life and another who adores tobacco . . . The two are in a continual contest for control; the ‘straight’ one often in command most of the time, but the wayward one needing only to get occasional control to spoil the other’s best laid plan. The purpose of this chapter is to show that the tools of economics can be employed in the study of drug addiction. We proceed as follows. Section...
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