Environmental Economics And The Social Cost Of Smoking

A widely prevailing assumption is that taxing and regulating smoking are justified on efficiency grounds since smokers impose a significant cost on others. Supposedly, the same economic analysis that has been used to justify taxing and regulating environmental pollution also applies to smoking. But two serious problems undermine the efficiency argument for taxation and regulation to internalize the cost of smoking. First, the largest external cost that smoking supposedly generates does not exist. Second, even if smoking does generate an external cost in the form of environmental tobacco smoke, one cannot justify either taxing or regulating smoking when one properly applies the principles of environmental economics.