Duke 2008 | ASHE | Equity and Efficiency in Health and Healthcare

There are several economic explanations for why individuals consume harmful addictive goods with considerably different implications for taxation and regulation of such activities. Important among these is that such goods are consumed because the “full” price of these is lower for some individuals. Using data on adults specifically collected for this study, we examine the internal cost of one such good by estimating the value that smokers and non-smokers place on health and longevity loss from a major lung disease, COPD. Differences in willingness to pay to avoid COPD between current and never smokers are in the range from $80,000-$260,000, implying that one reason people continue to smoke is that they face a lower full price of smoking. Our results suggest that although taxation and regulation of cigarettes may be justified on the grounds of externalities, the principle of consumer sovereignty implies that the case is much weaker for interventions based on helping smokers internalize their internal costs.