Economic aspects of smoking.

Abstract

Smoking has become a major issue for public health policy in recent years. This paper deals with the economic aspects of smoking. First, we outline the basic concepts of welfare economics which subsequently are used as the normative framework of the analysis. In particular, we stress the role of efficiency as a criterion for economic policy evaluation. Second, we demonstrate that smoking is associated with several market failures, notably externalities and dependency/addiction (non-rational behavior). Third, costs and benefits of smoking are considered. We argue that the benefits of smoking are the satisfaction (utility) which the consumers derive from it rather than the employment effect of producing tobacco products or the revenues of the excise tax on these products. A general model for estimating the costs of smoking is developed and various cost concepts are discussed. Empirical cost estimates are presented for Switzerland. In 1976, estimated social (economic) costs of smoking were between 560 and 800 million Swiss francs while the external costs were between 140 and 260 million francs. Contrary to a widely held belief, smoking hardly influenced health care costs because the higher medical care costs of smokers during their lifetime are offset by their reduced life expectancy. The last section deals with intervention strategies to reduce smoking: anti-smoking publicity, advertising restrictions, and taxation. We discuss these three instruments on a conceptual level and summarize previous empirical studies. The main results are: (1) Both publicity and taxation offer a considerable potential as deterrents of cigarette demand. (2) The results for Switzerland imply that publicity campaigns are likely to be efficient in the sense that expected campaign benefits outweigh its costs.