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Market regulation and firm performance: the case of smoking bans in the UK

Author

Listed:
  • Jerome Adda

    (Institute for Fiscal Studies and Bocconi University)

  • Samuel Berlinski

    (Institute for Fiscal Studies and Inter-American Development Bank)

  • V. Bhaskar

    (Institute for Fiscal Studies)

  • Stephen Machin

    (Institute for Fiscal Studies)

Abstract

This paper analyzes the effects of a ban on smoking in public places upon firms and consumers. It presents a theoretical model and tests its predictions using unique data from before and after the introduction of smoking bans in the UK. Cigarette smoke is a public bad, and smokers and non-smokers differ in their valuation of smoke-free amenities. Consumer heterogeneity implies that the market equilibrium may result in too much uniformity, whereas social optimality requires a mix of smoking and non-smoking pubs (which can be operationalized via licensing). If the market equilibrium has almost all pubs permitting smoking (as is the case in the data) then a blanket ban reduces pub sales, profits, and consumer welfare. We collect survey data from public houses and find that the Scottish smoking ban (introduced in March 2006) reduced pub sales and harmed medium run profitability. An event study analysis of the stock market performance of pub-holding companies corroborates the negative effects of the smoking ban on firm performance.

Suggested Citation

  • Jerome Adda & Samuel Berlinski & V. Bhaskar & Stephen Machin, 2009. "Market regulation and firm performance: the case of smoking bans in the UK," IFS Working Papers W09/13, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:09/13
    as

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    File URL: http://www.ifs.org.uk/wps/wp0913.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Wissmann, Daniel, 2020. "Finally a Smoking Gun," Discussion Papers in Economics 73026, University of Munich, Department of Economics.
    2. L. Pieroni & L. Salmasi, 2015. "Does Cigarette Smoking Affect Body Weight? Causal Estimates from the Clean Indoor Air Law Discontinuity," Economica, London School of Economics and Political Science, vol. 82(328), pages 671-704, October.
    3. Colin Green & John Heywood & Maria Navarro Paniagua, 2013. "Did liberalising English and Welsh bar hours cause traffic accidents?," Working Papers 33996659, Lancaster University Management School, Economics Department.

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    More about this item

    Keywords

    Regulation; smoking ban; market provision of quality; sales; prices; profitability; stock market performance.;
    All these keywords.

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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