The Social Costs and Benefits of Smoking: Modeling and Policy Implications for South Korea

Abstract

An economic rationale for anti-smoking regulation should lie in the costs of, as well as the benefits from, cigarette consumption. Yet social sentiment and government attitudes in dealing with this issue tend to emphasize the social costs of smoking, while underestimating or even ignoring the benefits from consuming tobacco. Using several specifications in modeling a cigarette demand curve and subsequent statistical analyses, this article estimates consumers’ surplus from cigarette consumption in South Korea. The analysis shows that the price elasticity of demand for cigarettes is low and that the net social benefits from smoking after subtracting social costs can vary from negative to positive, depending on the model specification. If a low price elasticity of demand is to be upheld and if positive net social benefits are the case, price control by the Korean government through higher cigarette taxes will yield only a limited impact on the reduction of the smoking population.