An Econometric Model of the Tobacco Industry

Abstract

N thi's paper we describe an econometric model of the American tobacco industry for the period 1949 through 1966. The model contains 19 equations and is divided into three major blocks - (1) leaf production, (2) leaf price, and (3) cigarettes. The objective is to explain the behavior of the tobacco industry over an 18 year period. Ultimately, we hope to use the model to perform policy simulation experiments to evaluate the effects of alternative governmental and managerial policies on the behavior of the industry. We begin with a brief description of the industry. Next we discuss the theoretical specification of the model and the statistically estimated equations. We conclude with some example simulation results which provide additional evidence of the validity of the model for explaining the behavior of the tobacco industry over the period 1949 through 1966.