Optimal Regulation of E-cigarettes: Theory and Evidence
107 Pages Posted: 30 Sep 2019 Last revised: 10 Dec 2020
Date Written: September 30, 2019
There is an active debate about how to regulate electronic cigarettes, due to uncertainty about their health effects and whether they are primarily a quit aid or a gateway drug for combustible cigarettes. We model optimal e-cigarette regulation and estimate key parameters. Using tax changes and scanner data, we estimate relatively elastic demand and cannot reject zero substitution between e-cigarettes and combustible cigarettes. In sample surveys, historical smoking trends for high- and low-vaping demographics were unchanged after e-cigarettes were introduced; this demographic shift-share identification suggests limited substitution. We field a new quantitative survey of public health experts, who report that vaping is more harmful than previously believed. In our model, these results imply that current e-cigarette taxes are below the social optimum, but Monte Carlo simulations highlight substantial uncertainty.
Keywords: E-cigarettes, vaping, cigarettes, smoking, gateway drug, health behavior, addiction, behavioral public economics, optimal sin taxes, behavioral welfare analysis.
JEL Classification: D12, D18, D61, H21, H23, I12, I18.
Suggested Citation: Suggested Citation