A welfare analysis of tobacco use

Introduction. Like most consumer goods, cigarettes have both costs and benefits. The chief benefits are the satisfaction and enjoyment that smokers receive from smoking. There are also profits to producers. The chief costs are death and disability among smokers themselves. Other costs, which are much smaller, include health damage to non-smokers from passive smoking. In conventional economics, consumers are assumed to weigh the personal costs and benefits of any purchase. It is assumed that, in buying something, a consumer has judged the personal benefits to outweigh the personal costs. Therefore, conventional cost–benefit analyses exclude consumers’ own costs and analyze only the costs that their consumption choices impose on others. In the case of smoking, the costs to smokers themselves— including the premature loss of life and health—should thus theoretically be excluded, because they are assumed to have been taken into account. However, it is argued here that smokers cannot be assumed to have taken all their personal costs into account, given the nature of tobacco as a consumer good. Most smokers start young, become addicted, and then face significant adjustment costs when trying to stop their addiction. In high-income countries, most adult smokers say they regret starting. The aim of this paper is to analyze the costs and benefits of smoking in a way that goes beyond the traditional approach and accounts for these factors.