Optimal e-cigarette policy when preferences and internalities are correlated

Michael E. Darden ()
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Michael E. Darden: Johns Hopkins University and NBER

Journal of Risk and Uncertainty, 2024, vol. 68, issue 2, No 1, 107-131

Abstract: Abstract This paper studies the policy implications of correlation between preferences and internalities in the context of tobacco products. Using novel survey data, I show that cigarette smokers who misperceive the relative health harms of cigarettes and e-cigarettes—and thus for whom internalities associated with imperfect information are potentially large—are also significantly less likely to respond to changes in relative prices. I build this heterogeneity into a model of cigarette and e-cigarette taxation to show that the relationship between the optimal e-cigarette tax and the mean elasticity of substitution is relatively flat. This is policy relevant because evidence of substitution is thought to suggest low (or even negative) e-cigarette taxes. Even at implausibly large degrees of substitution, simulated optimal e-cigarette taxes are positive and large.

Keywords: Tobacco control policy; Behavioral bias; E-cigarettes (search for similar items in EconPapers)
JEL-codes: H20 I12 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11166-023-09419-x

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