Working Paper: NBER ID: w24842
Authors: Julian Reif
Abstract: 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 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 that allows researchers to distinguish between two common forms of social interactions and draw welfare conclusions.
Keywords: Addiction; Social Interactions; Consumer Behavior; Welfare Economics
JEL Codes: D11; D12; H0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| social interactions (Z13) | increased consumption of addictive goods (E21) |
| past determinants of demand (J23) | social interactions (Z13) |
| conformity (D70) | consumption (E21) |
| spillovers (O36) | increased aggregate consumption (E20) |
| addiction (I12) | dynamics that help circumvent the reflection problem (C69) |