August 27, 2014 Leave a comment
This is the third post in a series on the FDA’s recent rulemaking around Graphic Warning Labels (GWLs) for cigarettes. The first two:
- Aug 8: How much pleasure does smoking bring?
- Aug 11: The correct counter factual is the key in estimating the cost of the smoking
At the heart of the FDA’s estimate of the cost of smoking (and therefore the benefits of cessation, which in turn provide the justification for the regulation) are the cost of smoking estimates that are the essence of our book The Price of Smoking. Frank Chaloupka and colleagues note in a paper commenting on the regulations that the FDA has undercounted benefits by relying on the estimates from our book that their review wrongly states were estimated with an improper control group. This is incorrect as noted in this post, (and Frank and I have communicated and he says that they will revise their paper as it moves toward publication).
However, the FDA estimates do appear to have under-counted the benefits of cessation by not including what we termed as quasi-external costs. We specified the NPV cost per pack smoked in 2000$ as follows:
- $33 private cost: borne by the individual, primarily through a substantially shortened lifespan
- $5.50 quasi-external cost: borne by the smokers’ family through increased health costs, slightly lower wages and other factors
- $1.50 external cost: borne by society, and representing the net effect of things like taxes paid, Medicaid and Medicare payments, and Social Security received
The FDA analysis appears to only count the individual mortality effect, which is roughly the same as the private cost above. The external cost could rightly be excluded because the taxes collected, on average, more than account for these purely externals costs (though there would be some state-level distributional impacts due to state tax variation). However, excluding the quasi-external costs, which would be avoided with cessation, and thus become benefits of the new regulation, the FDA likely did under count the benefits of smoking cessation.
In the next post, I will take on the issue that my friend Chris Conover is addressing here–is government intervention warranted to stop an activity that mostly imposes costs on individuals through their own actions.