Cost/benefit Analysis of Cigarette Smoking

Introduction

The overall economic costs of smoking cigarettes has become somewhat of an epidemic in society for a variety of reasons. It includes numerous private and social costs. The private cost to smokers goes far beyond the price of cigarettes alone. Smokers also pay with their health, life, and finances. Alongside the great cost to smokers, they enjoy benefits to the same degree. The total cost of smoking not only effects smokers, but society as well. The externalities from smoking are both negative and positive. Society bears the burden of the negative externalities, or social costs, both physically and monetarily. The positive externalities, or social benefits, play a significant economic role in society. The tobacco industry generates a great deal of revenue; thus adding to the country's GDP. And due to the heavy taxing, cigarettes and tobacco are a rich source of revenue to the Treasury.

Does the social cost of smoking outweigh the social benefit? Are tobacco taxes reasonable and fair? In order to answer these questions the issues addressed in the following paragraphs include the social costs of smoking, whether smokers cover the smoking-related costs that the rest of the community bears, and whether the average lifetime health care costs of tobacco users is higher than those of non-smokers. The private costs and benefits which effect every consumer of cigarettes will be analyzed first. Then the social costs and benefits resulting from private externalities will be analyzed. The revenue, taxes, and tax effects will be outlined and evaluated for fairness.

Finally, a conclusion and summary of the results will be given.

The Private Cost and Benefit of Smoking Cigarettes

The total cost of cigarette consumption to smokers is extensive. It includes monetary costs, health costs, and discriminatory costs. "Researchers at Duke University found that the total cost of smoking -- the cigarettes, lost earnings, impact on insurance on mortality, even the impact of secondhand smoke -- runs about $40 [41.50] per pack for the average 24-year-old."(Sloan)

Cigarettes alone are expensive. According to the Fair and Equitable Tobacco Reform Act of 2004, the national average price per pack of cigarettes in the U.S. is $3.80. Therefore, the average smoker of one pack a day will spend $1,368.00 per year on cigarettes. Someone living in Manhattan, New York will spend about $2,520.00. On a federal and state by state basis, the prices continue to rise due to tobacco tax increases. Unfortunately, the isolated cost of cigarettes does not make up the total monetary cost of smoking.

Along with tobacco taxes, there are many additional costs for smokers. On average, the life expectancy is shorter for smokers than for non-smokers, therefore smokers generally pay higher life insurance premiums. Due to the many smoking related illnesses, smokers generally pay higher health insurance premiums. Due to the increased risk of fire, smokers generally pay higher homeowners insurance premiums. Those who smoke in their homes incur cleaning, repainting, and re-carpeting costs if they want to sell their home. The resale value on a smoker's car is less than that of a non-smoker because of burns on the upholstery and cigarette odor. There are also many other miscellaneous costs smokers incur such as extra breath fresheners, extra dry cleaning bills, extra teeth cleaning, lower pension benefits, and lost wages due to illness. (Smith)

Monetary expenditures are not the only costs incurred by smokers. They also face discrimination and diminished quality of life. According The American Civil Liberties Union (ACLU), an estimated 6,000 companies do not hire smokers. "A few state governments also charge their employees extra for health insurance if they smoke, and others are gradually joining the trend. West Virginia, Georgia, Kentucky and Alabama charge state employees who smoke a surcharge; in Georgia, for example, that surcharge is an additional $40 per month."(Smith) Increasingly, states and communities are enacting "smoking bans" in public areas such as restaurants and bars. The average smoker's overall quality of life is jeopardized because of the health ramifications. Many long-time smokers have lower endurance than non-smokers which results in frequent shortness of breath. They are also more prone to common illnesses due to their lowered immune system. Finally, they are at a high risk for disease and premature death. Although these costs are high, smokers do reap some benefit by making the choice to smoke.

If the private cost of smoking to smokers is so high then why smoke? "According to economic theory, if smokers are fully informed, rational and under no duress, it can be assumed that the benefits of smoking to them are at least equal to the costs which they themselves bear."(Collins; Lapsley) Otherwise, they would not smoke. The benefits to the smoker are both physical and psychological.

Cigarettes are highly addictive. Reinforcement and withdrawal are the two key factors that establish cigarette smoking as an addictive behavior. As a learned response to consumption, reinforcement leads smokers into becoming dependent

on the rewards or benefits they reap from smoking. The nicotine in cigarettes creates a physical dependence while the act of lighting up and smoking creates a psychological dependence. A smoker benefits from the positive reinforcement that comes from both the physical and psychological effects of smoking. Smokers are also influenced by negative reinforcement--withdrawal. They smoke in order to avoid the feeling the extreme physical and psychological effects of withdrawal. The negative reinforcement that results from cessation or reduction of cigarette consumption has adverse effects on a smoker's body and mind. These adverse effects generally include irritability, anxiety, and increased blood pressure. (Kamin)

To incorporate addiction into economic terms, economists use a life-cycle model that links past, present, and future consumption choices. Based on the model, "a fully informed, rational [adult] smoker calculates the future addiction implications of current behavior." (Kamin) This smoker understands that continued cigarette consumption reinforces the tobacco habit, thereby threatening to impose a painful future transition cost--withdrawal--on his or herself. Considering the transition cost and the net benefits of smoking, the rational smoker decides on a level of cigarette consumption. (Kamin)

Unfortunately, most adult smokers were not fully informed or rational when the started smoking because they became addicted as teenagers. Most teens do