Peers and prices: Explaining the black-white youth smoking gap

In 1976, black and white teenagers in the United States were about equally likely to be cigarette smokers. By the early 1990’s, the smoking rate of black teenagers had dropped to one-third that of white teenagers. This paper analyzes the role of peers, prices, and other factors in explaining this divergence in behavior. I find that the dynamics of youth smoking can best be explained by the combination of rising prices in the 1980’s, a higher price elasticity for black teenagers, and the amplifying effects of social interactions (peer effects). In the process, I develop and implement several empirical tools for the analysis of the equilibrium implications of social interactions. In particular, I develop a procedure for determining whether peer influence is strong enough to produce multiple equilibria, and a procedure for estimating the ‘social multiplier’ associated with peer effects. I find that the multiple equilibria explanation is not empirically supported, but that the social multiplier effect is large enough to account for roughly half the difference in smoking rates.