Exploring Individual Demand for Cigarettes in Russia

Abstract

The paper discusses how increase in tobacco prices could reduce smoking in Russia. We analyze the determinants of tobacco consumption within rational addiction model and myopic addiction model. We use RLMS panel data (1994–2006) to prove rational addictive behavior of Russian smokers: they evaluate future changes in cigarette prices with respect to personal incomes and decrease/increase cigarette consum­ption according to future cigarettes affordability. It means that expectations about cigarette prices and personal disposable income can affect current consumption. However low price elasticity together with possibility to switch to cheaper brand set limits for policy interventions.