Optimal Regulation of E-cigarettes: Theory and Evidence

107 Pages Posted: 30 Sep 2019 Last revised: 10 Dec 2020

See all articles by Hunt Allcott

Hunt Allcott

Microsoft Corporation - Microsoft Research New England

Charlie Rafkin

Massachusetts Institute of Technology (MIT)

Date Written: September 30, 2019

Abstract

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

Allcott, Hunt and Rafkin, Charlie, Optimal Regulation of E-cigarettes: Theory and Evidence (September 30, 2019). Available at SSRN: https://ssrn.com/abstract=3462165 or http://dx.doi.org/10.2139/ssrn.3462165

Hunt Allcott (Contact Author)

Microsoft Corporation - Microsoft Research New England ( email )

One Memorial Drive, 14th Floor
Cambridge, MA 02142
United States

Charlie Rafkin

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

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