Tobacco Products and Consumer Welfare - Public Comments
Policy Integrity recently submitted public comments to the Food and Drug Administration (FDA) on its proposed rule to deem certain tobacco products, such as electronic cigarettes and cigars, subject to regulation. We believe the FDA may be dramatically understating the benefits from consumer behavior changes due to regulation of new tobacco products.
Developing a more balanced and accurate presentation of benefits is essential, both to highlight the social value of this rule, and to set the right precedent for analyzing future regulations of tobacco (and other addictive, status-driven consumer products).
We believe the proposed rule analysis needs some important economic adjustments, including:
- The FDA must justify its discounting decision. The agency essentially discounts 70 percent of the rule’s potential benefits to account for consumers’ lost pleasure from not smoking. The percentage seems to have been arbitrarily selected from a range of estimates in a single study, and the lack of transparent explanation violates best practices for regulatory analysis.
- The analysis must recognize that tobacco products are “positional goods” – their value depends strongly on how they compare with things owned by others. Tobacco regulation is a cooperative solution that allows consumers to achieve what they could not in the non-cooperative open market: an aggregate reduction in smoking that does not radically upset status hierarchies.The FDA should consider what portion of the allegedly positive consumer welfare from smoking is derived from tobacco’s positional nature, and adjust its findings accordingly.
- In its valuation of health outcomes, the FDA should account for dread and suffering. Research suggests that people’s willingness-to-pay to avoid a cancer death may be roughly double the valuation of avoiding instantaneous death. As such, the analysis of a rule that can prevent cancer and other long-latency diseases should reflect costs from morbidity and suffering, not just mortality (other agencies, such as EPA, already account for these factors in regulatory analysis).
Much more detail on these and other points can be found in our full comments.