The economic value to smokers of graphic warning labels on cigarettes: Evidence from combining market and experimental auction data

Abstract

Many countries now require prominent pictorial health warning labels (HWLs) on the front and back of cigarette packages. In the US, pictorial HWLs have been adopted, but tobacco industry litigation has delayed their implementation. This intervention could have value to smokers, if it increases their information and changes their smoking behavior. In this paper we estimate the value of two different health warning labels for cigarette packages relative to the current US labeling policy. Our methodology does not depend on the personal values of policy makers or other individuals, as the value of information estimates we derive are based solely on smokers’ own consumption choices, not any public health or other effects. We introduce an approach to valuing information with a surplus measure that couples willingness-to-pay from non-hypothetical experimental auctions with time-series revealed preference demand estimates. We find that a pictorial HWL has a large value to smokers, and a higher value than a label that only contains text, insofar as changing purchase behavior.