Ebook consumer casualties exploring the economics of habit information and uncer

Consumer Casualties This page intentionally left blank Consumer Casualties Exploring the Economics of Habit, Information, and Uncertainty in Japan Junmin Wan CONSUMER CASUALTIES Copyright © Junmin Wan, 2014. Softcover reprint of the hardcover 1st edition 2014 978-1-137-38724-0 All right reserved. First published in 2014 by PALGRAVE MACMILLAN® in the United States—a division of St. Martins Press LLC, 175 Fifth Avenue, New York, NY 10010.

Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978-1-349-48183-5 ISBN 978-1-137-38484-3 (ebook) DOI 10.1057/9781137384843 Library of Congress Cataloging-in-Publication Data Wan, Junmin.

Consumer casualties : exploring the economics of habit, information, and uncertainty in Japan / Junmin Wan. pages cm Summary: "In our increasingly globalized world of shared cultures, we have seen the spread of addictive behaviors such as smoking and various forms of gambling. As these behaviors and subsequent habits continue to spread across borders, it is paramount for policy makers to consider the economics of habit, information and uncertainty in their practices.Junmin Wan takes a two prong approach to analyzing this pressure in Japan in his new volume Consumer Casualties. He first clarifies the consumer preference for habit to identify useful approaches toward solving a number of economic issues, such as gambling and other addictive practices.

He then tests his theories with data on smoking, lottery gambling and pachinko gambling, to determine their causalities and distill proposals for policy makers"– Provided by publisher. Summary: "This work tries to examine the economics of habits via theoretical models and empirical testing of the models using micro and macro datasets, as they pertain to addressing various economics issues, including habit forming or addictive behaviors such as smoking and various forms of gambling. The issues of information asymmetry (e., the effect of lottery receipt on experiment on tax evasion) and uncertainty as they pertain to consumers and their preferences and habits are also included"– Provided by publisher. Includes bibliographical references and index.

Consumer behavior–Japan. Business ethics–Japan.8’3420952–dc23 2014019485 A catalogue record of the book is available from the British Library. Design by Newgen Knowledge Works (P) Ltd. First edition: November 2014 10 9 8 7 6 5 4 3 2 1 To my family.

This page intentionally left blank Contents List of Figures xiii List of Tables xv Acknowledgments xix 1 Introduction 1 1.1 Objectives of This Research 1 1.2 Motivation for, and Structure of, This Book 3 1.3 Main Findings and Issues Left for Future Research 5 2 Rational Addiction with an Optimal Inventory: Theory and Evidence from Japanese Daily and Monthly Purchases 7 2.2 First-Stage Decision: Optimal Consumption 9 2.3 Second-Stage Decision: Optimal Purchase and Inventory 11 2.4 Solutions to the Issues Raised in the Empirical Model 13 2.3 Empirical Test for the Rational Addiction Model with an Optimal Inventory 16 2.1 Daily Purchases Before and After a Tax Increase 16 2.2 Formal Test of the Addiction Model Using Monthly Data 18 2.4 Conclusion 26 viii Contents Appendix 2A: Proofs for Propositions 2.2 27 Appendix 2B: Data 28 3 Response to Health Information: Theory and Evidence from Cigarette Consumption and Intake of Nicotine and Tar in Japan 29 3.4 Dataset and Empirical Strategy 34 3.1 Dataset Used in Econometric Analysis 34 3.2 Nicotine and Tar Intake 42 3.3 Robust Results from Survey Data 43 3.4 Difference in the Awareness of the Damage from Smoking Between Smokers and Nonsmokers 44 3.6 Conclusion 46 Appendix 3A: Statistical Data 47 Appendix 3B: Surveys 49 4 Responses of Consumers to Mandatory Disclosure of Information: Evidence from Japanese Interbrand Cigarette Sales 53 4.3 Present State of Information Disclosure in Japan and the Theory of Information Disclosure 60 4.4 Policy Events Regarding Smoking in Japan 61 4.5 Data, Data Issues, and Their Solutions 62 4.1 Data and Graphs 62 4.3 Data Problem Solutions 68 Contents ix 4.6 Model and Estimation 69 4.1 Impact on Consumers 69 4.2 Impact on the Monopolistic Firm 74 4.1 Impact on Consumers 75 4.2 Impact on the Monopolistic Firm 82 4.8 Conclusion and Remaining Issues 85 5 Is Gambling Addictive? Evidence from Pachinko Participation, Quitting, and Reinitiation 87 5.3 Data and Estimation Methods 91 5.2 Information Used for the Empirical Test and Descriptive Statistics 92 5.5 Conclusion and Policy Implications 101 Appendix 5A: Data 103 Appendix 5B: Construction of the Variables 104 6 Are Gambling and Smoking Complementary? Direct Tests from Japanese Individual Data 107 6.3 Data and Estimation Technique 109 6.2 Information Used for Empirical Tests 110 6.5 Conclusion and Policy Implications 116 7 Tax Revenue in China and the Incentive to Declare Taxes: The Lottery Receipt Experiment 119 7.1 The Light and Shadow of China’s Economy 119 7.2 Issues in Taxation 120 7.3 Tax Evasion in China 124 x Contents 7.2 Mechanism of Tax Declaration by Lottery Receipt System in China 126 7.1 Probability of Winning a Prize, Amount of Prize, and the Dataset 129 7.2 Specification for the Empirical Model and Method 132 7.5 Conclusion 135 8 Is the Life Cycle Model or Ono’s Model Most Suitable for the Japanese? Analysis by Time-Series Data and Surveys of Lottery Purchase and Large Prizewinners 137 8.2 Specification of Utility Function for Parametric Estimation 139 8.3 Specification for Nonparametric Estimation 140 8.3 Methodology and Data 141 8.2 Time-Series Data 141 8.1 Time-Series Data 145 8.2 Results from Individual Data 145 8.5 Conclusion and Policy Implications 153 8.2 Policy Implications and Remaining Issues 155 Contents xi 9 Conclusions 157 9.1 Findings, Problems Solved, and Policy Proposals 157 9.2 Issues Remaining for Future Research 161 Notes 163 Bibliography 169 Name Index 177 Subject Index 181 This page intentionally left blank Figures 2.1 Inventory for tax increase in t+1 16 2.2 Daily purchase before and after tax increase 17 2.3 Monthly cigarette purchase before and after tax increase in 2003 19 2.4 Real and nominal cigarette price: January 1954 to September 2003 19 2.5 Per capita cigarette purchases versus rate of tax increase: January 1954 to September 2003 20 3.1 Share of filter cigarettes: 1951–1984; charcoal filter cigarettes: 1970–1984 38 3.2 Nicotine and tar intake levels: 1951–1999 39 3.3 Nicotine and tar intake levels: 1951–1999 40 4.1 Average nicotine and tar content per cigarette 63 4.2 Cigarette consumption per capita and per smoker 64 4.3 Total intake of nicotine and tar per capita 65 4.4 Total intake of nicotine and tar per smoker 66 4.5 Number of articles in the Asahi Shimbun with headlines including certain keywords 67 4.6 Nicotine content versus tar content of each brand 73 4.7 Number of brands on sale and average sales per brand 74 4.8 Number of new plain brands versus number of new filter-tipped brands 75 4.9 Number of discontinued brands versus number of new brands 76 4.10 Average nicotine (mg) per cigarette of discontinued brands versus that of new brands 77 xiv Figures 4.11 Average tar (mg) per cigarette of discontinued brands versus that of new brands 79 4.12 R&D costs versus the ratio of R&D costs to total sales revenue 80 5.1 Percentage of respondents who have ever exceeded the planned budget and borrowed money 89 7.1 Real growth in China 120 7.2 Ratio of public income to GDP and ratio of operating tax to total tax revenues in China 121 7.3 Budget deficit in China 122 7.4 Gini’s coefficient in China 123 7.5 Framework of the delivery of the lottery receipt in China 128 8.1 Lottery buying population and the experienced buyer: 1976–2004 143 8.2 Annual lottery sales versus the biggest prize: 1945–2004 144 8.3 Frequency at which lottery was purchased in 2000 144 Tables 2.1 Daily purchase before and after tax increase 17 2.2 Monthly purchase frequency and expenditure before and after tax increase 18 2.3 Summary statistics: January 1954 to September 2003 21 2.4 Tests of unit roots (ADF test and Phillips-Perron test): January 1954 to September 2003 22 2.5 Estimation results without distinction between purchase and consumption (do not consider optimal inventory) 23 2.6 Estimation results with distinction between purchase and consumption (consider optimal inventory, rational addiction model with optimal inventory) 24 2.7 Hoarding size versus the rate of tax increase 25 3.1 Main events of tobacco control from 1951 to 1999 34 3.2 Summary statistics: January 1951 to October 1999 35 3.3 Unit root tests (ADF and Phillips−Perron): January 1951 to October 1999 35 3.4 Estimates of rational addiction model with health information, Dependent variable = Ct , with distinction between purchase and consumption: January 1951 to October 1999 37 3.5 Robustness test, impose β a priori (Model 2) 41 3.6 Rate of contribution of each factor 41 3.7 Estimates of intake of nicotine and tar with health information, Dependent variable = nicotine intake, tar intake, with distinction between purchase and consumption: January 1951 to October 1999 42 xvi Tables 3.8 Proportion of those who know about the damages of smoking 44 3.9 Information difference between smokers and nonsmokers 44 3.10 Results of Why do you want to quit or reduce smoking? 45 4.1 Descriptive statistics for the full sample 71 4.2 Descriptive statistics for the sub-sample 72 4.3 Estimates with nicotine content 78 4.4 Estimates with tar content 81 4.5 Estimates with nicotine and tar content 83 4.6 Differences in nicotine and tar content between discontinued brands and brands introduced before and after 1967 84 5.1 Summary for pachinko industry (by pachinko hall; Unit: 1 million yen.4 Effect of experience on the will to quit (dependent variable = will quit the participation in the future) 97 5.5 Effect of experience on the will of reinitiation after quitting (dependent variable = will of reinitiation after quitting) 98 5.6 Effect of experience on the duration of no reinitiation after quitting (dependent variable = duration of no reinitiation after quitting) 100 6.1 Participation in pachinko versus status of smoking 111 6.2 Participation in pachinko-slot versus status of smoking 111 6.3 Status of smoking when playing pachinko 112 6.4 The will to go to a pachinko shop with a smoking ban 112 6.5 Status of smoking when playing versus the will to go to a pachinko shop with a smoking ban 113 6.6 Determinants of the will to go to a pachinko shop with a smoking ban 115 7.1 Areas with lottery receipt experiment in China 125 7.2 Main indicators in Beijing and Tianjin 130 Tables xvii 7.3 Summary of the main variables 130 7.4 Per capita growth rate of tax revenues in Huairou and in the other districts in Beijing before and after the experiments 131 7.5 Per capita growth rate of tax revenues in the districts of Beijing (experiments from August and from October) 131 7.6 Per capita growth rate of tax revenues in Beijing and Tianjin 131 7.7 Estimated results based on the 18 districts in Beijing 134 7.8 Estimated results based on the 17 districts in Beijing (experiments from August and from October) 134 7.9 Estimated results based on the 18 districts in Beijing and 21 districts in Tianjin 134 8.1 Estimation results for Ono’s hypothesis (MIUF model) 145 8.2 Reasons for buying a lottery (4,453 respondents) 146 8.3 People who buy lottery and the frequency at which they buy it 147 8.4 Announcing a big win: Who does the winner tell of winning a big prize? (6,001 respondents whose prizes are over 1 million yen) 149 8.5 The big prize winner? 150 8.6 Life style changes after winning a prize (percentage) 151 8.7 Spending the prize money 152 This page intentionally left blank Acknowledgments I would like to express my sincere gratitude to the many professors, fellow students, friends, scholarship foundations, and family members who have given me academic, financial, and intellectual support since I came to Japan, for the first time in 1993.