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Sunday, October 31, 2010

Double Hit on Cigarettes

I don't smoke. I think I tried it once as a teenager and decided when it didn't make me as cool as I was hoping it would I stopped right away. And the ill effects of smoking have long been documented, yet despite this I have several friends and acquaintances who I think are highly intelligent yet still smoke. And that's cool with me, they respect my air space and I respect their right to smoke.

The issue of smoking here in Colorado has for a few years been nonvolatile, ever since they opted on banning smoking in public spaces the new rules have been taken as given without much chance of affecting retroactive change. The government has herded the smoker's into small tiny, and well defined areas, for all intensive purposes they are keeping them away from public areas in order to help to 'control' the airspace.

Now after taking slightly more then half a semester a public sector/public finance economics we have learned that perhaps the government should intervene in a market if an externality exists. In the case of smoking one might define the effects of second hand smoke (upon non-smokers) and similarly the resultant air pollution from smoking as being areas that the government might want to pay attention, that they might be negative externalities. If you accept the argument that they are, air pollution and public health issues then you'd explore the potential of government intervention and even previous to the above noted law it did intervene. The excise tax on cigarettes is well known and has been increased at times steadily and other times dramatically.

In class we've discussed that there are more then one way to restrict the amount of an activity that produces an externality. You can tax it, shifting supply and moving the quantity appropriately (excise tax) or you can restrict/prohibit it (limiting smoking areas). So by restricting smoking areas the government limits the area of the externality and makes it more easy to avoid the second hand smoke externality associated with smoking. This action either ignores any contributory effects of smoking to air pollution or affirms that they may not be contributory at all. So if the government regulation on places to smoke deals with the externality in this way then shouldn't the tax be lifted or vice versa, imposing two controls is somewhat double dipping or at least increases the margin of error? My suggestion would be to deal with it in a taxing manner and then let the individual decide on the margin whether they choose to smoke or not.

Your analysis is fine as a static, location-less analysis. But, if you think about the location of smoking, then I think the Coase proposition probably becomes useful for analysis. The smoking "externality" is probably limited in space, so generally the smoking "external cost" from one smoker's choices involves a small number of 3rd parties. Even when property rights aren't very well defined in this case, I think people can choose to offer a payment, or easily move. And, when property rights are well defined, e.g. I own a bar or restaurant, the property owner can say "smoking" or "no smoking." I suspect the smoking externality is probably externality abuse.
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