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Cost-benefit analysis involving addictive goods: contingent valuation to estimate willingness-to-pay for smoking cessation

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Author Info
David L. Weimer (University of Wisconsin-Madison, Madison, WI, USA)
Aidan R. Vining (Simon Fraser University, Vancouver, BC, Canada)
Randall K. Thomas (Harris Interactive, Rochester, NY, USA)

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Abstract

The valuation of changes in consumption of addictive goods resulting from policy interventions presents a challenge for cost-benefit analysts. Consumer surplus losses from reduced consumption of addictive goods that are measured relative to market demand schedules overestimate the social cost of cessation interventions. This article seeks to show that consumer surplus losses measured using a non-addicted demand schedule provide a better assessment of social cost. Specifically, (1) it develops an addiction model that permits an estimate of the smoker's compensating variation for the elimination of addiction; (2) it employs a contingent valuation survey of current smokers to estimate their willingness-to-pay (WTP) for a treatment that would eliminate addiction; (3) it uses the estimate of WTP from the survey to calculate the fraction of consumer surplus that should be viewed as consumer value; and (4) it provides an estimate of this fraction. The exercise suggests that, as a tentative first and rough rule-of-thumb, only about 75% of the loss of the conventionally measured consumer surplus should be counted as social cost for policies that reduce the consumption of cigarettes. Additional research to estimate this important rule-of-thumb is desirable to address the various caveats relevant to this study. Copyright © 2008 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/hec.1365
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Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

Volume (Year): 18 (2009)
Issue (Month): 2 ()
Pages: 181-202
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Handle: RePEc:wly:hlthec:v:18:y:2009:i:2:p:181-202

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

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  2. Glied, Sherry, 2002. "Youth tobacco control: reconciling theory and empirical evidence," Journal of Health Economics, Elsevier, vol. 21(1), pages 117-135, January. [Downloadable!] (restricted)
  3. Werner, Megan, 1999. "Allowing for Zeros in Dichotomous-Choice Contingent-Valuation Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(4), pages 479-86, October.
  4. Gary S. Becker & Michael Grossman & Kevin M. Murphy, 1994. "An Empirical Analysis of Cigarette Addiction," NBER Working Papers 3322, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Laux, Fritz L., 2000. "Addiction as a market failure: using rational addiction results to justify tobacco regulation," Journal of Health Economics, Elsevier, vol. 19(4), pages 421-437, July. [Downloadable!] (restricted)
  6. Alan Diener & Bernie O'Brien & Amiram Gafni, 1998. "Health care contingent valuation studies: a review and classification of the literature," Health Economics, John Wiley & Sons, Ltd., vol. 7(4), pages 313-326.
  7. William N. Evans & Jeanne S. Ringel & Diana Stech, 1999. "Tobacco Taxes and Public Policy to Discourage Smoking," NBER Chapters, in: Tax Policy and the Economy, volume 13, pages 1-56 National Bureau of Economic Research, Inc. [Downloadable!]
  8. Henrik Hammar & Olof Johansson-Stenman, 2004. "The value of risk-free cigarettes - do smokers underestimate the risk?," Health Economics, John Wiley & Sons, Ltd., vol. 13(1), pages 59-71. [Downloadable!]
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  9. Auld, M. Christopher & Grootendorst, Paul, 2004. "An empirical analysis of milk addiction," Journal of Health Economics, Elsevier, vol. 23(6), pages 1117-1133, November. [Downloadable!] (restricted)
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  10. Chaloupka, Frank J. & Warner, Kenneth E., 2000. "The economics of smoking," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 29, pages 1539-1627 Elsevier. [Downloadable!] (restricted)
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  11. Suranovic, Steven M. & Goldfarb, Robert S. & Leonard, Thomas C., 1999. "An economic theory of cigarette addiction," Journal of Health Economics, Elsevier, vol. 18(1), pages 1-29, January. [Downloadable!] (restricted)
  12. Becker, Gary S & Murphy, Kevin M, 1988. "A Theory of Rational Addiction," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 675-700, August. [Downloadable!] (restricted)
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