Testing Gateway Theory: Do cigarette prices affect illicit drug use?

We test the causal Gateway Theory of drug use dynamics by way of a natural experiment. We randomize cigarette smoking by birth cohort and cigarette prices. We use data for Israel to show that while cigarette smoking causes cannabis use, the evidence that cannabis use causes hard drug use is much weaker. These results are based on various econometric methodologies including two-stage logit (2SL), bivariate probit, and frailty analysis for survival data.