Why not charge $40 for a pack of cigarettes

Via Freakanomics, it seems that for men US$222, and for woman US$94, is the true cost of a packet of cigarettes, when you add in the net preent value of the damage to your health and lifespan.

The public sector economist in me says that you should  step in when there is a big disparity between the price of something and its full externality-loaded value.

That means charging a tax on Carbon emissions so we can slow global warming, taxing  petrol to ensure there are less cars and less fuel used, and, yes, charging nearer to the real cost of those cigarettes.

While $222 is too high – people will just grow their own – why not change the paradigm, and make the cost $20 or $40 per pack? That’s really sending a strong message. Sure it will reduce tax income as we’d expect use to drop right off, but we are serious about health right?

Published by Lance Wiggs


5 replies on “Why not charge $40 for a pack of cigarettes”

  1. Interesting post Lance – I guess it’s about identifying the “sweet spot” where the price is high enough to be a discourager but low enough to not cause a widespread blackmarket to develop


  2. interesting Scott
    – actually Singapore tries to cost in externalities in vehicles by making people pay super high annual taxes. Some friends calculated it was cheaper to take a taxi each day from anywhere in Singapore to work than it was to own a car.

    Bikes pay a lot less of course – less congestion & emissions. Factoring in life expectancy would be interesting.


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