Causal effect of early initiation on adolescent smoking patterns M. Christopher Auld 1 University of Calgary August 2002 This version: December 2003 Abstract A key concern in policy debates over youth smoking is whether pre- venting children from smoking will stop them from smoking as adults or merely defer initiation into smoking. This paper estimates smoking status in late adolescence viewing smoking at age 14 as an endogenous “treatment” on subsequent smoking, an approach which disentangles causation from unobserved heterogeneity and allows the model to cap- ture the theoretical prediction that addictiveness varies across individ- uals. Exploiting large tax changes across time and across regions in Canada in the early 1990s, a structural model of potential outcomes is estimated to recover distributions of heterogeneous addictiveness. The results suggest that smoking is highly addictive for the average youth but less so for youths who actually do initiate early or are likely to be induced to initiate early at the margin. Thus, policies which de- ter initiation will reduce eventual smoking rates, but not by as large a magnitude as conventional econometric models might suggest. JEL Classification: I1, C3 Keywords: smoking, addiction, causal model, peer effects 1 I gratefully acknowledge many helpful comments from Arild Aakvik and seminar par- ticipants at McMaster University, the University of Illinois at Chicago, the U.S. Federal Trade Commission, the 2003 International Health Economics Association meetings, and the 12 th European Workshop on Econometrics and Health Economics. The Alberta Her- itage Foundation for Medical Research provided financial support.