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Tobacco Regulation through Litigation: The Master Settlement Agreement

In: Regulation vs. Litigation: Perspectives from Economics and Law

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  • W. Kip Viscusi
  • Joni Hersch

Abstract

The 1998 Master Settlement Agreement resolved the unprecedented litigation in which the states sought to recoup the cigarette-related Medicaid costs. The litigation was settled through a combination of negotiated regulatory requirements and financial payments of about $250 billion over 25 years. Settlement payments received by states are strongly related to smoking-related medical costs but are also related to political factors. The payments largely took the form of an excise tax equivalent, raising potential antitrust concerns. The regulatory restrictions imposed by the agreement also raised antitrust concerns. However, there has been no evident shift in industry concentration. The increase in advertising and marketing expenses has largely taken the form of price discounts. The settlement sidestepped the usual procedures pertaining to the imposition of taxes and the promulgation of new regulations.

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This chapter was published in:

  • Daniel P. Kessler, 2010. "Regulation vs. Litigation: Perspectives from Economics and Law," NBER Books, National Bureau of Economic Research, Inc, number kess09-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 11959.

    Handle: RePEc:nbr:nberch:11959

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    1. David M. Cutler & Jonathan Gruber & Raymond S. Hartman & Mary Beth Landrum & Joseph P. Newhouse & Meredith B. Rosenthal, 2002. "The Economic impacts of the tobacco settlement," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 21(1), pages 1-19.
    2. Michael L. Marlow, 2007. "Do Tobacco-Control Programs Lower Tobacco Consumption?," Public Finance Review, , , vol. 35(6), pages 689-709, November.
    3. Hersch, Joni, 2000. " Gender, Income Levels, and the Demand for Cigarettes," Journal of Risk and Uncertainty, Springer, Springer, vol. 21(2-3), pages 263-82, November.
    4. Frank A. Sloan & Justin G. Trogdon, 2004. "The impact of the master settlement agreement on cigarette consumption," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 23(4), pages 843-855.
    5. Viscusi, W Kip, 1999. "The Governmental Composition of the Insurance Costs of Smoking," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 42(2), pages 575-609, October.
    6. David M. Cutler & Arnold M. Epstein & Richard G. Frank & Raymond Hartman & Charles King III & Joseph P. Newhouse & Meredith B. Rosenthal & Elizabeth Richardson Vigdor, 2000. "How Good a Deal Was the Tobacco Settlement?: Assessing Payments to Massachusetts," NBER Working Papers 7747, National Bureau of Economic Research, Inc.
    7. W. Kip Viscusi, 1995. "Cigarette Taxation and the Social Consequences of Smoking," NBER Chapters, in: Tax Policy and the Economy, Volume 9, pages 51-102 National Bureau of Economic Research, Inc.
    8. Joni Hersch & Alison F. Del Rossi & W. Kip Viscusi, 2004. "Voter Preferences and State Regulation of Smoking," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 42(3), pages 455-468, July.
    9. W. Kip Viscusi & Joni Hersch, 2007. "The Mortality Cost to Smokers," NBER Working Papers 13599, National Bureau of Economic Research, Inc.
    10. Farrelly, Matthew C. & Pechacek, Terry F. & Chaloupka, Frank J., 2003. "The impact of tobacco control program expenditures on aggregate cigarette sales: 1981-2000," Journal of Health Economics, Elsevier, Elsevier, vol. 22(5), pages 843-859, September.
    11. Sloan, Frank A. & Trogdon, Justin G. & Mathews, Carrie A., 2005. "Litigation and the value of tobacco companies," Journal of Health Economics, Elsevier, Elsevier, vol. 24(3), pages 427-447, May.
    12. Justin G. Trogdon & Frank A. Sloan, 2006. "Cigarette Taxes and the Master Settlement Agreement," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 44(4), pages 729-739, October.
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    Cited by:
    1. Chia-Lin Chang & Sung-Po Chen & Michael McAleer, 2010. "Globalization and Knowledge Spillover: International Direct Investment, Exports and Patents," Working Papers in Economics, University of Canterbury, Department of Economics and Finance 10/54, University of Canterbury, Department of Economics and Finance.

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