Trends in the Cigarette Industry After the Master Settlement Agreement

On November 16, 1998, States attorneys general and cigarette manufacturers signed an agreement to reimburse the States for the costs of treating smoking-related illnesses and to reduce underage smoking. Within a few days, all 47 States and the District of Columbia (four States settled previously) and various territories had signed on with the agreement. This tobacco settlement did not require approval by Congress. Since the Master Settlement Agreement (MSA) was signed in November 1998, the cigarette industry has been forced to raise prices to cover the costs associated with the settlement. The agreement between the attorneys general from 46 States and the major cigarette companies was intended primarily to reimburse States for expenses related to the treatment of smoking-related illnesses. The agreement also contained provisions to reduce smoking prevalence, especially among youth. Cigarette companies have boosted prices as a result of payments required by the settlement. Higher prices have curtailed consumption, although not as much as originally expected. The long-term decline in cigarette consumption due to non-economic factors continues as well.