Understanding the Demand-Side of an Illegal Market: Prohibition of Menthol Cigarettes

Donald Kenkel, Alan Mathios, Grace N. Phillips, Revathy Suryanarayana, Hua Wang and Sen Zeng

No 32148, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The Food and Drug Administration has proposed to prohibit menthol cigarettes, which are smoked by almost 19 million people in the U.S. Illegal markets for menthol cigarettes could not only blunt the prohibition’s intended consequence to reduce smoking but could also lead to unintended consequences. We use data from a discrete choice experiment to estimate a mixed logit model which predicts that the prohibition of menthol cigarettes would substantially increase the fraction of menthol smokers who attempt to quit. However, our model also predicts a substantial potential consumer demand for illegal menthol cigarettes. Depending on the impact of illegality on product prices, our model predicts the potential demand-side of an illegal market for menthol cigarettes could be 59-92 percent the size of the status quo market if menthol e-cigarettes are legal, and 69-100 percent the size of the status quo market if menthol e-cigarettes are also illegal. Our mixed logit model estimated in willingness to pay space implies that the mean WTP to avoid an illegal retail market is equivalent to a tax of $8.44 per pack. In our partial cost-benefit analysis, the opportunity costs of prohibition exceed the value of the reduction in mortality risks from secondhand smoke by $15.4 billion annually.

JEL-codes: D12 I12 (search for similar items in EconPapers)
Date: 2024-02
New Economics Papers: this item is included in nep-com, nep-dcm and nep-hea
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