The Economics of Smoking

252 Pages·1992·17.1 MB·English

by  Robert D. Tollison

The Economics of Smoking
The Economics of Smoking
By
Robert D. Tollison
Richard E. Wagner
Center for Study of Public Choice
George Mason University
1IIIt...
"
Springer Science+Business Media, LLC
Library of Congress Cataloging.in.Publication Data
Tollison, Robert D.
The economics of smoking I by Robert D. Tollison, Richard E.
Wagner.
p. cm.
Includes bibliographical references and index.
ISBN 978·94·010·5733·2 ISBN 978·94·011·3892·5 (eBook)
DOl 10.1007/978·94·011·3892·5
1. Smoking-Economic aspects. 2. Tobacco habit-Economic aspects.
3. Tobacco industry-Government policy. 4. Smoking-Economic
aspects-United States. 5. Tobacco habit-Economic aspects-United
States. 6. Tobacco industry-Government policy-United States.
I. Wagner, Richard E. II. Title.
HV5735.T65 1991
338.4 , 36797-dc20 91-31510
CIP
Copyright © 1992 by Springer Science+Business Media New York
Originally published by Kluwer Academic Publishers in 1992
Softcover reprint of the hardcover 1s t edition 1992
All rights reserved. No part of this publication may be reproduced, stored in a retrieval
system or transmitted in any form orby any means, mechanical, photo-copying, recording,
or otherwise, without the prior written permission of the publisher, Springer Science+
Business Media, LLC .
Prillted 011 acid-free paper.
Contents
Preface ix
1. Tobacco Warfare In America: An Overview 1
A BatdefieldTour 1
American Principles, Public Policy, and Tobacco Warfare 5
Organization ofthis Book 7
2. Welfare Economics, Public Policy, And Smoking 13
Smoking, the Market Process, and a Free Society 14
Taxation and Regulation in aMarketEconomy 18
Welfare Economics and Tobacco Policy 24
TobaccoTaxation as CorrectiveTaxation 28
Tobacco Taxation: An Overview 30
3. The Taxation And Regulation ofSmoking:
Principle vs. Expediency 33
Realistic Politics and Tobacco Policy 34
Knowledge and the Improbability ofCorrective Taxation 38
Political Incentive and ActualTobaccoTaxation 42
Rationale, Reality, and Tobacco Regulation 48
Tobacco Policyin Constitutional Perspective 49
v
vi Tollison & Wagner
4. SmokingAnd The Economic Cost OfLost Production 53
Smoking and Health: The Method of"Attributable Risk" 54
How Accurate are Measures ofAttributable Risk? 57
Economic Measurement ofIndirect Costs 61
Joint Costs and Improper CostAttribution 64
Who Loses Lost Production: Smokers or Nonsmokers? 66
What about the Benefits ofSmoking? 69
5. Markets, Insurance, And The Medical Costs OfSmokers 73
Attribution of"Medical Costs" to Smoking 74
Medical Costs, Personal Responsibility, and Insurance 77
Life Insurance and Nonsmoker Discounts 79
Health Insurance and Smoker-Nonsmoker Parity 81
Smoking and Fire Costs 83
Moral Hazard and Insurance Costs 86
6. Medicare, Medicaid, And The Social Cost OfSmoking 89
Smokers and the Cost ofMedicare 89
Transfers and Social Costs: A Clarification 94
Proposals for Eannarked CigaretteTaxes 98
Principle, Expediency, and WealthTransfers 103
7. Smoking, Business Costs, And Social Cost 107
Smoking and the Efficiency ofTeam Production 108
Smoking and Workplace Efficiency 111
Workplace Costs: A Further Consideration 115
Smoking and Economic Productivity: A Conceptual Framework 119
Smoking and Productivity: Discussion ofthe Data 122
8. ETS And Governmental Protection OfConsumers And Workers 127
The Economics ofClean Indoor Air Acts 129
The CoaseTheorem, Ownership Rights, and Markets 133
An Alternative Explanation 138
Tobacco and "Public Health" 140
9. Advertising, "Addiction," And The Denial OfTrue Choice 145
SeparatingAdvertising Myth from Advertising Reality 146
Impact ofCigarette Advertising on SmokingbyYouth 147
Cigarette Advertisingis a Firm-Specific Investment 149
International Evidence: Cigarette AdvertisingBans do notWork 151
The Constitution and the Protection ofCommercial Speech 152
Advertising and Addiction 158
The New Economics ofAddiction 159
Consumer Sovereignty or Health Fascism? 162
The Economics ofSmoking vii
10. SelfIntercst, Public Intcrest, And Legislation 167
Corrective CigaretteTaxation: An Analytical Unicorn 167
An Economic Approach to Legislation and Regulation 170
Democratic Politics and Tax Policy 174
Rent Seeking,Tax Resistance, and Social Waste 176
The Social Cost ofTobaccoTaxation: A Recalculation 181
Economic Principles and the Anti-Cancer Bureaucracy 182
TobaccoTaxation and Regulation: A Realistic Approach 187
11. Intcrcst Groups And The Public's Health 193
Overview 193
Market Processes and Personal Health 195
Is Health Research a Public Good? 199
Public Health and the Collective Interests ofPhysicians 205
SelfInterestin Public Interest Organizations 209
12. Principle And Expcdiency In Public Policy 215
Principles ofConstitutional Political Economy 217
The Self-Ownership Foundations ofa Democratic Polity 220
Considerations from the Economic Theory ofLegislation 222
Implications for Public PolicyTowardTobacco 223
Implications for Public Policy More Broadly Considered 225
References 235
Author Index 244
Legal Cases 247
Subject Index 248
PREFACE
Cigarettes are under political attack at all_levels of government in the
United States. From Washington, D.C. to state capitals to local govern
ments, proposals abound to increase the cigarette excise tax, to impose
smoking bans, to prevent cigarette advertising, to restrict the sale of
cigarettes through vending machines, to cut off the export of cigarettes,
to earmark the cigarette excise tax for health programs, to divest the
stock of cigarette companies, and so on. And all of these are purportedly
being advocated in the name of health. Undergirding and abetting the
health argument is an economic argument that claims to place a value of
up to $100 billion per year on the alleged health costs of smoking to the
American economy, which is more than $3 per pack of cigarettes
smoked.
As our title suggests, our interest lies in the economics of smoking
and not in the health issues surrounding smoking. We are professional
economists and not medical scientists. We will focus on what, if any,
economic consequences arise for nonsmokers when smokers smoke. For
purposes of our discussion, we simply accept the premise that smoking
damages health and proceed with our analysis. Since we have not studied
the issue ourselves, we have no way of knowing whether such a premise
is true. But it really does not matter for getting the economics of
smoking right. The important point resides in who pays for whatever
costs may be attributable to smoking. If smokers bear all such costs,
ix
x Tollison & Wagner
including any health risks, then surely no issue of public policy or
taxation arises, at least within the setting of a free society. But if non
smokers pay part of the costs of smoking, there would be a clear
rationale for the intervention of government in taxing and regulating
smoking behavior. Resolving this important issue represents the primary
focus of this book.
Unlike our previous book on the subject (follison and Wagner 1988),
our intention in this book is to be comprehensive. We seek to cover all
of the economic issues that have been raised with respect to cigarette
smoking. In addition to a careful consideration of the argument that
smokers impose costs on nonsmokers, we examine the issues surrounding
the regulation of environmental tobacco smoke, the advertising of
tobacco products, the public health bureaucracy and its associated interest
groups, the health-promotion "industry," the earmarking oftobacco taxes,
and various other issues related to smoking. Most of these issues,
however, derive from the social cost argument. For example, the argu
ment that tobacco advertising should be banned or regulated is based on
the proposition that smoking should not be promoted, especially to
young people, because it impares health and imposes costs to society. So
the root issue remains whether smokers pay their own way in society. For
if they do, issues such as the above should become moot, at least when
judged against the traditional standards of American democracy, where
adults are presumed generally to be free to pursue whatever activities and
interests they choose, provided only that they do not interfere with the
similar liberties of others in the process.
We will also try to set the issue of smoking in a larger context. If, in
fact, smoking is taxed and regulated on strictly majoritarian and unprin
cipled grounds (smokers equal about one-third and nonsmokers two
thirds of the adult population in the United States), then the arguments
that are being used to provide the intellectual basis for such programs are
quite dangerous and insidious and can be quite easily applied to virtually
every facet of people's everyday lives. Thus, while smoking may be the
issue of note today, to allow a faulty economics of smoking to prevail is
an open invitation to tomorrow's arguments about the social costs of
sugar, sunbathing, saturated fat, recreational injuries, obesity, and on and
on and on. Down this road lies not a free society but a totally regulated
society with only one acceptable lifestyle as prescribed by the health
The Economics ofSmoking xi
paternalists. In a world of busybodies it is only a matter of time before
something even the busybodies themselves like will come under scrutiny.
Getting the economics ofsmoking right is therefore important.
Although we are economists, we have written this book not just for
economists but for everyone who is interested in possible public policy
measures concerning smoking. In so doing we have tried to limit our use
of technical economic argumentation and concepts, and where we could
not avoid such usage, to present it in an understandable fashion.
This manuscript was produced under a grant from The Tobacco
Institute. The views expressed are those of the authors and not neces
sarily those of the Institute or its member companies. We are grateful to
Mrs. Carol Robert for her unfailing and unflappable assistance in the
preparation and typesetting of the manuscript.
The Economics of Smoking