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The European Journal of Health Economics

Published in:

01-06-2012 | Original Paper

Smoking bans and the secondhand smoking problem: an economic analysis

Authors: Annette Hofmann, Martin Nell

Published in: The European Journal of Health Economics | Issue 3/2012

Abstract

Smoking bans are gaining widespread support in the European Union and other countries. The vast majority of these bans are partial bans given that smoking is still permitted in certain places. This article investigates the role of partial smoking bans in coping with externalities caused by the secondhand smoking problem. Although it is widely known that Pigouvian taxation is superior to a perfect ban, this result does not necessarily carry over to a partial ban because taxes cannot (easily) be differentiated according to location. We show that under an easy and intuitive condition, (1) enacting a partial smoking ban alone always improves social welfare (a) in an unregulated society and (b) even in a regulated society if externalities can be eliminated, and (2) it is ensured that a combination of Pigouvian tax and a partial smoking ban leads to a higher social optimum than implementing corrective Pigouvian taxation alone.

Of course, the direct health effects of smoking are enormous. We do, however, focus on the indirect effects in order to analyze the impact of public policy on the secondhand smoking problem. There is an extensive literature on direct impacts of smoking on health and welfare. First important research has been conducted around 1950–1960 by Wynder and Graham [45], Doll and Hill [9], Hammond and Horn [18] as well as Hammond and Horn [19] who were followed by countless others. The value of loss in life due to smoking is significant as shown by Viscusi [41] and Viscusi and Aldy [42]. In a more recent study, Viscusi and Hersch [43] use a general formulation of the present value of the mortality cost of smoking. Strikingly, they find that the expected discounted mortality cost per pack in 2006 Dollars using a 3% discount rate is about $222 for male and $94 for female smokers. This is considerably above previous estimates.

In 1990 the first restaurant and bar smoking ban was passed by San Luis Obispo in California. See Phelps [33].

See Institute of Medicine [22].

The American Heart Association, for instance, estimates that between 35,000 and 40,000 heart disease death occur every year only due to environmental tobacco smoke. See Taylor et al. [40].

See Lee [23, p. 156].

See Pigou [35].

See Gifford and Stone [14] for a technical proof.

See Phelps [32, p. 430]. Taking into account the unequal power in the relationship between employees and employers reinforces the problem. We discuss a possible market solution in Sect. 2.5 below.

Empirical analyses suggest that people are responsive to cigarette price changes, i.e. the elasticity of demand is nonzero. See, for instance, Wasserman et al. [44, p. 62].

To correct for drinking externalities, laws that prohibit drunken driving might similarly be interpreted as partial drinking bans.

See Grossman [17] or Hirshleifer and Riley [21] for early studies on rational-choice models. Although rational addiction is the dominant economic model, it is not the only one. See, for instance, Alamar and Glantz [4].

We use a static approach in our model and focus on rational decisions. Addiction as a component of the individual smoking decision is implicitly included as some part of individual utility. Addiction models build on early analyses in which the individual’s past consumption patterns affect present choices. See, for instance, Pollak [36] or Stigler and Becker [39]. However, addiction may be consistent with rational behavior as shown by Becker and Murphy [6]. For a detailed summary of the economic analysis of addictive consumption, the reader is referred to Pacula and Chaloupka [31].

This assumption is without loss of generality. We use it in order to obtain an easy and intuitive interpretation of our results in later analysis.

It should be noted that, to simplify the analysis, we study a representative disease (for instance, heart attack). The impact of a heart attack on an individual is measured by s. The events “a disease is caused directly by a an individual by smoking himself” (d) and “a disease is caused indirectly by secondhand smoke exposure” (a) are assumed to be independent. The probability of “disease occurs” in case of a smoker is then Pr(d) + Pr(a) − Pr(d ∩ a) = p + qx − pqx = p + (1 − p)qx (see Eq. 1). In case of a nonsmoker, this probability is reduced to qx (see Eq. 2).

We assume without loss of generality that an individual does not smoke if she is indifferent.

The assumption ${\hbox {d}}\Updelta(\widehat{u})/{\hbox {d}}\widehat{u} < 0$ implies $spq<1/f(\widehat{u}). $ It is for technical reasons only since it eliminates the possibility of more than one interior solutions in our model. Note that it is always fulfilled for a uniform distribution $(f(\widehat{u}):=1/\overline{u}). $ The possibility of multiple solutions, however, doesn’t make any economic sense. We therefore focus on the reasonable monotonic cases.

Note that the maximum is indeed unique since it is determined by condition $\Updelta(\widehat{u}) + qs \cdot F(\widehat{u})+[1-F(\widehat{u})](1-p)qs=0$ which can be rewritten to $\Updelta(\widehat{u}) -[[1-F(\widehat{u})]qps-qs]=0. $ The former expression is decreasing in $\widehat{u}. $

Note that $\Updelta(u^{\ast})$ is zero.

See Poutvaara and Siemers [37, p. 1510].

In Fig. 1, we assume h = 100; s = 60; p = 0.2; d = 5; q = 0.5; q _b = 0.2 and $\overline{u}=100. $

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Title: Smoking bans and the secondhand smoking problem: an economic analysis
Authors: Annette Hofmann
Martin Nell
Publication date: 01-06-2012
Publisher: Springer-Verlag
Published in: The European Journal of Health Economics / Issue 3/2012
Print ISSN: 1618-7598
Electronic ISSN: 1618-7601
DOI: https://doi.org/10.1007/s10198-011-0341-z

At a glance: The STEP trials

Springer Medicine

Smoking bans and the secondhand smoking problem: an economic analysis

Abstract

At a glance: The STEP trials

Springer Medicine

Abstract

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