Prices and social behavior: Evidence from adult smoking in Canadian Aboriginal communities

This paper provides estimates of tobacco price elasticity explicitly distinguishing between two price effects: the direct effect, reflecting individual reaction to a price change, and the indirect effect, whereby price influences the individual by changing community smoking behaviour. Canada's Aboriginal communities are small and secluded, allowing for plausible identification of reference groups on a relatively large scale. Estimates suggest a 10% increase in price decreases daily smoking by 0.91 percentage points (2.11%), occasional smoking by 1.24 percentage points (8.27%) and average smoking intensity by 0.15 cigarettes per day (2.9%). It is found that the indirect effect almost doubles the response to a change in tobacco prices over the direct effect alone.