Economics and Nicotine

It cannot be taken for granted that accurate and timely anticipation of the adverse consequences of a particular action necessarily produces decisions to prevent them. For example, the failure of cigarette smoking to decline or of repeated disasters to discourage occupancy of flood plains raises doubts about the level of individual response.

Beyond the need of adequate motivation and appropriate institutions, there is the great difficulty of balancing the gains and the losses. Let us look more closely at the cigarette smoker, and let us assume that he is well-informed about the effects. Presumably, the smoker has achieved a balance of gains and losses: The gain from inhalation more than offsets the pain from possible illness and shorter lifetime. Arriving at the balance is likely to involve several elements—among them, the weighing of pleasure now against pain later, with the distant event, as is customary in such situations, heavily discounted; the reluctance and remoteness of applying to oneself a cause-and-effect relationship that is only statistically demonstrated, a reason for additional discounting; the calculation of odds; allowance for personal habits and characteristics; appeasement through change to presumably less harmful brands. Clearly some such calculus underlies the decision to smoke and how much to smoke.

One might go on to speculate that those smokers who have digested the new knowledge have adjusted to it by setting their daily intake at a level at which they judge further reduction would gain them less in future health than they would forego in current pleasure; a level, conversely, at which the improvement in current well-being derived from the extra cigarette, the marginal revenue, is not worth the incremental health hazard, the marginal cost. At that point, the smoker is in equilibrium. This point comes at different levels of smoking for different people, and the motivation—the type of gain extracted—differs widely among smokers. Thus, rationality of decision is not the issue. Rather, what is open to discussion and represents a proper area for education is the value scales on which pleasure from smoking and pain from ill health are traded off.

A serious economic problem arises not when an individual’s actions affect adversely only himself (though costs of medical attention will in varying degrees not be defrayed by the individual, and there is, therefore, a public interest), but when those actions affect, primarily and often exclusively, other people.

This has implications not only for evaluating the cost-benefits of individual health, but for measuring society’s demands for improving the quality of its environment. For we must recognize that the decisionmaker can err.

Let us assume, for the sake of argument, that cigarette smoking were considered a form of pollution and its practice made subject to public regulation. In the light of the last few years’ experience, there can be little doubt that any restrictions put on smoking would not be in accord with the aggregate of private valuations rationally arrived at—not only, as J. W. Milliman has suggested, because the political process is no freer from imperfection than the market mechanism, but because there is a real conflict between a theoretical cost-benefit calculus, made in all good faith, and one derived from the summation of an individual’s preferences. Only by cranking in society’s interest in a healthier population as a plus could one hope to redress the balance toward a net gain from restrictive regulation.