The death rates of smokers and their external effects

Abstract

Purpose – The purpose of this paper is to demonstrate that the externality that arises from environmental tobacco smoke damage is no ordinary externality. Apart from acting to the detriment of passive smokers, tobacco smoking also affects the survival probabilities of smokers. Incorporating this into its analysis, this paper evaluates the damage caused by smoking, the appropriate design of public health policies and tax policies targeted at reducing tobacco‐related externalities.Design/methodology/approach – By mathematically characterising how smoking impacts smokers and non‐smokers differently, the paper determines smokers' and non‐smokers' lifetime utility, enabling one to evaluate the impact of both health interventions and tax policies.Findings – The paper shows that treatment as well as research and development leading to life‐prolonging health outcomes for smokers are generally oversupplied. The tax recommendations, however, are far from straightforward. Indeed, although not universally the case, i...