Retrospective and Prospective Benefit-Cost Analysis of Us Anti-Smoking Policies

51 Pages Posted: 9 Mar 2015 Last revised: 17 Mar 2015

See all articles by Lawrence Jin

Lawrence Jin

Cornell University

Donald Kenkel

Cornell University - Department of Policy Analysis & Management (PAM); National Bureau of Economic Research (NBER)

Feng Liu

Shanghai University of Finance and Economics; The Chinese University of Hong Kong, Shenzhen

Hua Wang

Cornell University

Date Written: March 2015

Abstract

Regulatory policies designed to improve societal welfare by “nudging” consumers to make better choices are increasingly popular. The application of benefit-cost analysis (BCA) to this sort of regulation confronts difficult theoretical and applied issues. In this analysis we contribute a worked example of behavioral BCA of US anti-smoking policies. Our conceptual framework extends the standard market-based approach to BCA to allow for individual failures to make lifetime utility-maximizing choices of cigarette consumption. We discuss how our market-based approach compares to the health benefits approach and the “consumer surplus offset” controversy in recent BCAs of several health-related regulations. We use a dynamic population model to make counterfactual simulations of smoking prevalence rates and cigarette demand over time. In our retrospective BCA the simulation results imply that the overall impact of antismoking policies from 1964 – 2010 is to reduce total cigarette consumption by 28 percent. At a discount rate of 3 percent the 1964-present value of the consumer benefits from anti-smoking policies through 2010 is estimated to be $573 billion ($2010). Although we are unable to develop a hard estimate of the policies’ costs, we discuss evidence that suggests the consumer benefits substantially outweigh the costs. We then turn to a prospective BCA of future anti-smoking FDA regulations. At a discount rate of 3 percent the 2010-present value of the consumer benefits 30 years into the future from a simulated FDA tobacco regulation is estimated to be $100 billion. However, the nature of potential FDA tobacco regulations suggests that they might impose additional costs on consumers that make it less clear that the net benefits of the regulations will be positive.

Suggested Citation

Jin, Lawrence and Kenkel, Donald and Liu, Feng and Wang, Hua, Retrospective and Prospective Benefit-Cost Analysis of Us Anti-Smoking Policies (March 2015). NBER Working Paper No. w20998. Available at SSRN: https://ssrn.com/abstract=2575484

Lawrence Jin (Contact Author)

Cornell University

Donald Kenkel

Cornell University - Department of Policy Analysis & Management (PAM) ( email )

120 Martha Van Rensselaer Hall
Ithaca, NY 14853
United States
607-255-2594 (Phone)
607-255-4071 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Feng Liu

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

The Chinese University of Hong Kong, Shenzhen ( email )

Hua Wang

Cornell University ( email )

Ithaca, NY 14853
United States

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