Economic approaches to smoking

Abstract

In order to assess regulator's legitimacy in discouraging people from smoking, economists model tobacco addiction. In this paper, we review the extent economic literature about tobacco consumption and tobacco addiction. Two main approaches are singled out. In the first section, we detail the main characteristics of the two main theoretical models : rational addiction on one hand, which stylises individual choosing now to give up their future liberty to choose whether or not to smoke; and health capital on the other hand, following which individuals trade off between current pleasure and life expectancy. Second section gives account of the empirical tests of these two theories, before a last section briefly discusses and concludes. We show that the health capital theory seems to pass the test better than the rational addiction model. It is important to discriminate between these two models, from a political economy point of view. Were rational addiction true, a constant and strong increase of taxes on tobacco would be the soundest policy to curb consumption. On the contrary, if smokers are trapped into addiction and can't stop without pain, then tax increase is imposing too much strain on them, for no result. An efficient policy would be to subsidise quitting programmes, or to help smokers reducing their consumption through partial prohibition (in public transports for instance).