Cigarettes and Addiction Information: Simulating the Demand Effects of the Tobacco Industry's 'Conspiracy of Silence'

Fenn, Aju J.; Schroeter, John R.

Applied Economics Vol. 36 (October 2004): 2151-2160.

Although cigarette manufacturers were aware of the addictive properties of nicotine as early as 1962, the information did not become available to the U.S. public until 1979 when the Surgeon General disclosed it. This study simulates the impact that this information would have had on the demand for cigarettes had it been released in 1962. The simulations build on past work by Fenn, Antonovitz, and Schroeter (FAS) that found evidence that the release of addiction information resulted in a structural shift in demand in 1979. In the present paper, the econometric results from FAS are used to compute simulated time paths for state-level per capita consumtpion under the hypothetical scenario involving the earlier release of the addiction information. Using these simulated consumption paths, the projected reductions in cigarette sales revenue are calculated. These dollar figures provide a benchmark against which to judge the compensation amounts that the industry must pay as a result of recent tobacco lawsuit settlements.