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Tobacco Regulation and Cost-Benefit Analysis: How Should we Value Foregone Consumer Surplus?

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  • Helen Levy

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  • Edward Norton

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  • Jeffrey Smith

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Abstract

This paper outlines the history of the FDA’s recent attempts to regulate cigarettes and other tobacco products and how they have valued foregone consumer surplus in cost-benefit analyses. It discusses the evidence on whether consumers are fully informed about the risks of smoking and whether their choices are rational, reviewing the competing arguments made by different authors about these questions. It describes the appropriate approach to welfare analysis under different assumptions about consumer information and rationality. Based on our reading of the theoretical and empirical literatures, also advocates using a behavioral public finance framework borrowed from the literature on environmental regulation. [Working Paper 22471]

Suggested Citation

  • Helen Levy & Edward Norton & Jeffrey Smith, 2016. "Tobacco Regulation and Cost-Benefit Analysis: How Should we Value Foregone Consumer Surplus?," Working Papers id:11159, eSocialSciences.
  • Handle: RePEc:ess:wpaper:id:11159
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    References listed on IDEAS

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    1. Cutler, David M. & Jessup, Amber & Kenkel, Donald & Starr, Martha A., 2015. "Valuing Regulations Affecting Addictive or Habitual Goods," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 6(02), pages 247-280, June.
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    1. repec:eme:aheszz:s0731-219920170000025005 is not listed on IDEAS
    2. Philip DeCicca & Donald Kenkel & Feng Liu & Hua Wang, 2017. "Behavioral Welfare Economics and FDA Tobacco Regulations," Advances in Health Economics and Health Services Research,in: Human Capital and Health Behavior, volume 25, pages 143-179 Emerald Publishing Ltd.
    3. Donald S. Kenkel & Sida Peng & Michael F. Pesko & Hua Wang, 2017. "Mostly Harmless Regulation? Electronic Cigarettes, Public Policy and Consumer Welfare," NBER Working Papers 23710, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    FDA; cigarettes and other tobacco products; consumer surplus; cost-benefit analyses; the risks of smoking; public finance framework;

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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