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Michael Grossman, program director of health economics research at the National Bureau of Economic Research and a professor at the City University of New York Graduate Center, will speak on “The Economics of Substance Use: The Role of Price” at 8 p.m. Thursday, Feb. 24, in the auditorium of Lafayette College’s Simon Center for Economics and Business Administration.

The presentation is Lafayette’s 2000 Olin Lecture. The Olin Lecture Series is sponsored by the department of economics and business and supported by the John M. Olin Foundation, Inc.

Grossman is coeditor of Economic Analysis of Substance Use and Abuse: An Integration of Econometric and Behavioral Economic Research, published in 1999 by the University of Chicago Press. He also wrote The Demand for Health: A Theoretical and Empirical Investigation (1972, Columbia University Press) and was assistant author for Economic Theory by Gary Becker (1971, Alfred A. Knopf). His many journal articles have investigated topics such as the effects of beer taxes on physical child abuse, the impact of “quasi-governmental authorities” on the cost of capital for health care financing agencies, the effect of drug use on workplace accidents, an empirical analysis of cigarette addiction, and dozens of others. He has edited and served as associate editor for several publications. Grossman also has written numerous book reviews and participated in over 25 funded research projects. He has been a consultant for the National Institute on Alcohol Abuse and Alcoholism, the National Academy of Sciences, the National Science Foundation, and Rand Corporation.

“The economics of substance use and abuse deals with the consumption of goods that share two properties,” explains Grossman. “First, they are addictive in the sense that an increase in past consumption of the good leads to an increase in current consumption. Second, their consumption harms the consumer and others. This second property makes them of interest from policy, legal, and public health perspectives.

“Clearly, not every addictive good harms the user and others. A person can be addicted to jogging, classical music, detective novels, attending church, and other activities that do not harm others and may yield future benefits to the individual in addition to increases in current utility. But the consumption of such substances as cigarettes, alcohol, cocaine, marijuana, and heroin can harm the consumer and others. For example, cigarette smoking has been labeled as the largest preventable cause of death by the last three annual U.S. Surgeon General’s Reports on Smoking and Health. Motor vehicle accident mortality is the leading cause of death of persons between the ages of 1 and 35 in the U.S., and alcohol is involved in almost 50 percent of these fatal accidents. The consumption of cocaine and other illicit substances results in deaths due to drug overdoses and the violence that accompanies the purchase and sale of illegal drugs. The existence of external costs (harm to others) and ignored internal costs (harm to self) suggests a possible justification for government intervention. This policy may not, however, be justified if it generates substantial external costs, or if the costs of eliminating the harms are greater than the costs arising from the harms.

“The full price of addictive goods can be defined broadly to include not only the money price, but such indirect cost elements as the monetary value of the travel and waiting time required to obtain the good, the monetary value of the expected penalties for possession of illegal drugs or conviction of drunk driving, and the monetary value of the adverse health effects. The responsiveness of these substances to full price is an important parameter in determining the optimal level of taxation and the impacts of legalization. The economics of substance use and abuse is very relevant to these issues because recent theoretical advances predict that addictive goods should be more sensitive to price than previously believed. A growing body of empirical studies confirms this prediction.”

Grossman was nominated for the Kulp Award of the American Risk and Insurance Association for The Demand for Health in 1976. He has been included in every edition of Who’s Who in America since 1984, and has been a member of the National Academy of Sciences’ Institute of Medicine since 1990. He also has been chosen for fellowships by the Earhart Foundation, the Ford Foundation, and Columbia University.

Grossman earned a bachelor’s degree from Trinity College, graduating cum laude. He also earned a Ph.D. with distinction from Columbia University in 1970. He won the Harry G. Friedman Prize for the best doctoral dissertation defended in the Department of Economics at Columbia University in 1970.

For more information, call the department of economics and business at 610-330-5306.

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