Auld, M. Christopher. 2005. "Smoking, Drinking, and Income." Journal of Human Resources 40(2): 505-518.

In an effort to increase understanding of the “alcohol/income puzzle”--the finding that drinking appears to lead to higher income--this paper presents maximum simulated likelihood estimates of a system of limited dependent variables governing smoking and drinking patterns and income. With all else held constant, moderate drinking is associated with 10 percent higher income, and heavy drinking associated with 12 percent higher income, than drinking abstention. Smoking is associated with larger effects on income than drinking: Single-equation estimates suggest smokers earn 8 percent less than nonsmokers, and the smoking penalty rises to 24 percent after correcting for endogeneity.

M. Christopher Auld is an assistant professor of economics, University of Calgary. He thanks Cam Donaldson, Herb Emery, Susan Ettner, Christopher Ferrall, Daniel Gordon, Jonathon Gruber, James MacKinnon, Harry Paarsch, two anonymous referees and seminar participants at the 2000 European Workshop on Health Econometrics in Amsterdam, the 1999 Canadian Health Economics Research Association meetings in Edmonton, the 1999 meetings of the Atlantic Economic Association at Munich, University of Calgary, Queen’s University at Kingston, and the University of Alberta, who made many helpful comments. Cailen Henry provided excellent research assistance. This work was supported by a grant from the Alberta Heritage Foundation for Medical Research. The data used in this article can be obtained beginning October 2005 through September 2008 from the author, 2500 University Dr SW, Calgary, AB, T2N 1N4, auld@ucalgary.ca.