The demand for tobacco products in the UK

This paper reports the results of the estimation of a tobacco demand model built by Professor Pissarides at the LSE and Paul Cullum at HM Customs and Excise. It is an attempt to overcome some of the problems found in previous attempts to model the tobacco market given its increased complexity over recent years. A model of the tobacco market is developed that allows for the sophisticated decisions of consumers who can choose between different qualities and sources of cigarettes or hand rolling tobacco. Elasticities with respect to the price of duty paid cigarettes are derived. A range of results has been considered to reflect some of the uncertainties in the tobacco market.