Adjustment costs, withdrawal effects, and cigarette addiction

Article Abstract:

The economic theory of cigarette addiction proposed in the study by Suranovic et al. is problematic. The gist of the model by Suranovic et al. is that the marginal productivity of cigarette consumption is asymmetric as a result of withdrawal effects, implying that there are different kinds of adjustment cost function for different styles and stages of quitting. However, a more effective model should be one in which the adjustment costs associated with nicotine dependence are included in a structural model of rational addiction.

Smokers

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Taxation, regulation, and addiction: a demand function for cigarettes based on time-series evidence

Article Abstract:

Californians' cigarette consumption is analyzed in respect to the effect of pricing, taxation, income and regulations to discourage smoking. The study, utilizing monthly time series data in the period 1980-1990, includes information before and after the cigarette tax in California was increased to $0.35/pack from the previous rate of $0.10/pack. Both pricing and regulation were found to effect consumption, and long-term effect of the tax increase was estimated to be a consumption decline of 10%-12%.

Analysis, Demand (Economics)

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Do cigarette producers price-discriminate by state? An empirical analysis of local cigarette pricing and taxation

Article Abstract:

Analysis of statistics for 50 states covering the period 1960-1990 shows that cigarette manufacturers are able to partly foil the effects of local antismoking regulation by offering lower prices on a state-by-state basis, which nevertheless do not diverge much from final retail prices. These retail prices, however, are pegged at a rate that allows the manufacturers to profit despite the taxes: a one-cent per pack increase in state tax is matched by a 1.1-cent increase in prices.

Cigarettes, Cigarette Manufacturing, Research, Tobacco, Price discrimination

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