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This dissertation develops a testable hypothesis that isolates the reason for the estimated relationship. The competing explanations are an efficiency mechanism and future opportunity costs. The efficiency explanation is that the more educated will allocate resources away from unhealthy behaviors into healthier behaviors, and so are less likely to smoke (allocative efficiency), and/or they are better producers of health and so are less likely to smoke (productive efficiency). The alternative explanation of future opportunity costs asserts that the more educated have higher expected future income and so have more to lose from smoking. To develop a testable hypothesis, I make use of degree effects--the phenomenon of a discontinuous jump in earnings once a person gets a degree. Only future opportunity costs will lead to degree effects appearing in the health behavior equations. Neither efficiency mechanism could cause such degree effects.

Several simulations are run to examine the effects of policies that operate via future opportunity costs on the health behaviors. These simulations show that the policies considered here do little to deter binge drinking. Moreover, despite the evidence that future opportunity costs deter smoking, only the extreme policy of forcing high school completion seems to have any impact on smoking. By comparison, raising cigarette taxes seems to have a relatively large effect on deterring both smoking and binge drinking.