One important consequence of addictions is the high occurrence of relapsing after treatment, which often lies between 40 and 60% depending on the kind of addiction and population (Mc Lellan et al., 2000). While the importance of prevention-treatment policies against addictions is widely acknowledged in the economic literature, the consequences of relapsing on the effectiveness of such policies remain yet under-investigated. This paper seeks to bridge the gap by introducing a dynamic model where individuals can move back and forth between active addiction and abstinent addiction. Though both states are socially costly, active addiction promotes initiation by others while temporary abstinence discourages it. Our main purpose here is to evaluate how the tradeoff between prevention and treatment of addiction is affected by the occurrence of relapsing.
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