Profiting from smokers.*.

• Author: Bulow, Jeremy
• Position: Review article

In the late 1990s more than 40 state attorneys general sued the major tobacco companies for the excessive medical costs imposed on the states by smoking. In November 1998 this litigation was concluded with the companies agreeing to pay approximately $9 billion a year, to be adjusted for inflation, in damages and lawyers' fees. The deal was incredibly corrupt; had it been made in any other industry it would surely have been declared illegal. And the tobacco companies were not the only bad guys in this story. The trial lawyers, the politicians, and even the public health officials and antismoking advocates who believed that any means were appropriate to achieve their desired ends of massive fees, political victories, and higher cigarette prices were the ones who most abused the system.

W. Kip Viscusi, an economist and professor at Harvard Law School, focuses on the merits of the state tobacco litigation, principally whether the companies were guilty of inadequately communicating the risk of their products to smokers, which links to youth smoking, and the economic damages the states suffered because of smoking. Viscusi, who has worked on these issues for many years, was hired by Philip Morris to testify on these two topics in the litigation. Nevertheless, he makes a credible case on both issues. Viscusi is substantially less interested in the actual structure and implications of the negotiated deal and spends only a limited amount of time exploring the policy implications of today's tobacco politics, though he does spend a concluding chapter advocating improved information about tobacco for smokers.

1. Risk Perception and Youth Smoking

   Risk perception is inextricably linked to youth smoking, the focus of most recent tobacco politics. The companies are accused of promoting underage smoking and thereby addicting kids who are both poorly informed and incapable of making rational decisions about cigarettes. When these kids become adults they are already addicted and many find it difficult to quit. A further argument is that the warnings on packages were inadequate, particularly because they did not warn smokers about addiction.

   But Viscusi claims that for many years, at least, kids have shown a remarkable degree of public awareness of the relationship between smoking and lung cancer--much greater in Gallup polls than the awareness that the earth revolves around the sun. As with the general public, kids overestimate the risk of a smoker dying from lung cancer by a factor of four. Indeed, 97% of all California 10th graders believe that breathing secondhand smoke is unhealthy. That said, even if kids have been well informed, those who chose to smoke may have made poor decisions that were influenced by tobacco company marketing programs, which were surely aimed at young adults if not at illegal youth smokers.

   I believe a more interesting test is to compare youth smoking with other risk behaviors for 9th-12th graders. In 1995 the Centers for Disease Control estimated that the probability that a kid has smoked at least one cigarette in 20 of the past 30 days is roughly equal to the probability that he or she has driven drunk in the past month, and it is about twice the probability of having carried a gun to school in the past month or attempted suicide in the past year. Smoking kills, but perhaps more attention should be given to reducing other risk behaviors.

   A second issue that receives scant attention is racial differences in youth smoking. African American kids are half as likely to smoke as Caucasian kids. But African American adults are far less successful at quitting. Perhaps the link between youth and adult smoking is not terribly simple. We do not know whether a reduction in Caucasian youth smoking would lead to a proportional reduction in adult smoking or if those who would least likely be long-term smokers would be most likely not to start, thereby making the Caucasian statistics look more like the African American statistics. Also, perhaps the public health emphasis, as opposed to the political emphasis, should be on adult smokers.

   The political reason for the focus on youth smoking is that it is much harder to make the argument that we should be protecting adults against themselves, and if we recognize that most smokers are low income and addicted it becomes harder to justify regressive cigarette taxes, except with the youth smoking rationale. But as Viscusi points out, people aged 12-18 account for about 1% of cigarette purchases and perhaps 4% of all consumption; therefore, if the real focus is on youth smoking, then a tax increase is a remarkably poor instrument. (Some researchers claim that youth demand is as much as twice as price elastic as adult demand, but given kids' small share of consumption the point remains.)

   Furthermore, there is the issue of who should have the incentive to reduce youth smoking. The federal government writes the warnings on cigarette packages. Antismoking ads are produced by antismoking groups. Enforcement of the youth smoking laws is the responsibility of state and local governments rather than the companies, who sell to 770 wholesalers who, in turn, sell to 283,000 retailers. Parental behavior has been convincingly shown to be a key determinant of youth smoking. And then there is the question of the law itself--even as recently as 1990 one third of the states permitted smoking by kids under 18. Yet the Tobacco...