Academic journal article Contemporary Economic Policy

The Demand for Cigarettes in Japan: Impact of Information Dissemination on Cigarette Consumption

Academic journal article Contemporary Economic Policy

The Demand for Cigarettes in Japan: Impact of Information Dissemination on Cigarette Consumption

Article excerpt

Yimin Zhou (*)

The authors present a theoretical derivation of cigarette demand and estimate the demand in Japan with prefecture-level data. By examining the impact of information dissemination regarding the health hazards of smoking, the authors argue that information dissemination is an effective instrument of public health policy, supplementary to cigarette taxation and antismoking ordinances. (JEL D12, H51, 118)

I. INTRODUCTION

This study of cigarette demand in Japan was motivated by two stylized facts. First, Japan has by far the highest per capita consumption of tobacco among industrialized countries according to the data published by the World Health Organization (WHO). (See Table 1 for details.) Second, despite massive warnings of the sharp rise in smoking-related costs in Japan, as reported, for example, in the Economist (November 4, 1995), studies of smoking-related issues conducted by economists in Japan are practically nonexistent. This paucity is documented by the reference search CD-ROM compiled by the Library of the Diet. Only one paper exists (Haden, 1990), and it is not concerned with the public health aspect of smoking. The first objective is, therefore, to break ground in this unexplored area.

The second objective is to estimate Japanese cigarette demand and to evaluate the postulation that information dissemination about the health hazards of smoking plays an important role in affecting per capita cigarette consumption, in addition to the effects of price and income. Instead of merely positing a regression equation, the article derives the cigarette demand function by explicitly introducing a household or personal production function into utility maximization a la Becker and Stigler (1977). This approach enables us to exclude the inexplicable differences in preferences among individuals living in different prefectures and to attribute all differences among prefectures to differences in price, income, and information dissemination.

Before engaging in the main body of the study, the article presents a brief and inexhaustive review of previous studies of smoking-related issues outside Japan.

Smoking-related issues have been of interest to economists for many decades. One such study dates back as early as Schoenberg (1933) who conducted a statistical analysis of cigarette consumption for the 1913-31 period and gave a brief history of cigarette consumption dating back to 1864 when the manufacture of cigarettes began in the United States. Research topics on smoking are varied. First, almost all studies cover the topic of price elasticity of cigarette demand and have found that smokers are sensitive to price increases. These studies suggest that taxation is an effective instrument of public policy in that an increase in cigarette excise tax significantly reduces smoking. Chaloupka and Wechsler (1997) present a recent compact review on price elasticities of cigarette demand. For the Canadian experience, see Galbaith and Kaiserman (1997). Galbraith and Kaiserman (1997) and Lewit et al. (1982) deal with a slightly different but closely related topic, namely, price elasticities of smoking participation.

Another important issue to economists is whether price elasticities of cigarette demand differ among different age groups. Chaloupka and Wechsler (1997), for instance, find that young smokers are more sensitive to price increases than are adult smokers, though Chaloupka (1991) and Wasserman et al. (1991) earlier rejected this hypothesis.

A third research topic on smoking concerns the question of whether or not the "health scare" evoked by the 1964 U.S. Surgeon General's Report and antismoking commercials have had negative effects on cigarette consumption. Hamilton (1972), and Kao and Tremblay (1988) find evidence supporting the "health scare" hypothesis, whereas Bishop and Yoo (1985) find evidence otherwise.

The impact of cigarette advertising ban on smokers' behavior is another important research topic. …

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