Economic Modelling of the Gateway Effect

Published In: Health Economics, v. 6, no. 5, Sept-Oct 1997, p. 521-524

Posted on on December 31, 1996

by Rosalie Liccardo Pacula

Although a significant number of empirical studies provide evidence of sequencing in drug use, economic theory remains focused on addiction to a single substance. This paper presents a general model of substance use that allows for the possibility of multi-commodity habit formation and can be used to analyse the intertemporal relationship between the consumption of legal and illicit drugs, or the gateway effect. A simple two-drug model is analysed and conditions for the existence of multi-commodity habit formation are examined. It is found in the case of multi-commodity habit formation that the marginal utility of initiating a new drug is higher when there is prior consumption of the other drug. Further, it is found that the individual will initiate drug consumption with that drug that has the lowest marginal cost. The particular sequencing of drug use that is observed in empirical data is explained by differences in the marginal cost of consuming legal and illegal drugs.

This report is part of the RAND Corporation External publication series. Many RAND studies are published in peer-reviewed scholarly journals, as chapters in commercial books, or as documents published by other organizations.

Our mission to help improve policy and decisionmaking through research and analysis is enabled through our core values of quality and objectivity and our unwavering commitment to the highest level of integrity and ethical behavior. To help ensure our research and analysis are rigorous, objective, and nonpartisan, we subject our research publications to a robust and exacting quality-assurance process; avoid both the appearance and reality of financial and other conflicts of interest through staff training, project screening, and a policy of mandatory disclosure; and pursue transparency in our research engagements through our commitment to the open publication of our research findings and recommendations, disclosure of the source of funding of published research, and policies to ensure intellectual independence. For more information, visit

The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.