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Behavioral Welfare Economics and FDA Tobacco Regulations

Philip DeCicca, Donald Kenkel (), Feng Liu and Hua Wang
Authors registered in the RePEc Author Service: Philip DeCicca

No 22718, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The U.S. 2009 Tobacco Control Act opened the door for new anti-smoking policies by giving the Food and Drug Administration broad regulatory authority over the tobacco industry. We develop a behavioral welfare economics approach to conduct cost-benefit analysis of FDA tobacco regulations. We use a simple two-period model to develop expressions for the impact of tobacco control policies on social welfare. Our model includes: nudge and paternalistic regulations; an excise tax on cigarettes; internalities created by period 1 versus period 2 consumption; and externalities from cigarette consumption. Our analytical expressions show that in the presence of uncorrected externalities and internalities, a tax or a nudge to reduce cigarette consumption improves social welfare. In sharp contrast, a paternalistic regulation might either improve or worsen social welfare. Another important result is that the social welfare gains from new policies do not only depend on the size of the internalities and externalities, but also depend on the extent to which current policies already correct the problems. We link our analytical expressions to the graphical approach used in most previous studies and discuss the information needed to complete cost-benefit analysis of tobacco regulations. Finally, we use our model as a framework to re-examine the evidence base regarding the size of the relevant internalities.

JEL-codes: I0 I18 I28 (search for similar items in EconPapers)
Date: 2016-10
New Economics Papers: this item is included in nep-hea
Note: HE
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