Academic journal article Political Research Quarterly

Regulatory Policy When Behavior Is Addictive: Smoking, Cigarette Taxes and Bootlegging

Academic journal article Political Research Quarterly

Regulatory Policy When Behavior Is Addictive: Smoking, Cigarette Taxes and Bootlegging

Article excerpt

Regulatory policy generally offers three policy instruments-command and control regulation, incentives, and information-yet efforts to test the comparative effectiveness of these instruments have been lacking. Using a simple theory derived from the economics of supply and demand, this study presents a hypothesis that information policies will interact with incentives and lessen their impact. If incentives policies are not uniform across the nation, they can also create compliance problems. These hypotheses are tested with pooled data set on cigarette regulation. While both information policies and incentives are effective at reducing cigarette consumption, they interact so that the total impact is less than the sum of the individual effects. State tax rates also interact with each other creating the incentive to avoid compliance by bootlegging cigarettes.

The politics of regulatory policy addresses two key choices-should we regulate and if so, what policy instruments should we use. Both choices seek the authoritative allocation of values. In regulatory policy the policy instruments' decision selects among command and control regulation, economic incentives, and the provision of information (Eisner 1993; Reagan 1987; Rose-Ackerman 1995). With command and control regulation, the government both sets the objectives and specifies the means to obtain those objectives; occupational safety regulations are a prime example. Economic incentives are formed when government sets goals and creates incentives to meet those goals; individuals may decide how and when to respond. Taxes are the major form of regulatory incentives; agricultural subsidies, tax credits, and pollution markets can also be considered regulatory incentives. Finally, the provision of information can supplement or even replace other types of regulation. The logic of information, such as in food package labeling, is that consumers can make an informed judgment concerning the risk involved and the benefits and costs of alternative behavior. Although one can justify any of the approaches to regulation, much of the recent policy debate has focused on incentives. Taxes, as a regulatory instrument, have some relative advantages. First, they are easy to enforce since they can be levied on producers. Second, they link to a clear theory of policy impact (see Mazmanian and Sabatier 1989), the economic theory of supply and demand (see below). Finally, they have a long history of success as a regulatory instrument (e.g., automatic weapons, cocaine, and marijuana are just three products initially regulated through taxation; see Meier 1994). One area of regulatory policy that mixes all three forms of regulation is the public health effort to reduce cigarette consumption. Laws prohibiting sales to minors or the recent attempt by the Food and Drug Administration to declare nicotine a drug are command and control regulations. Cigarette excise taxes are a form of incentive, and the warnings on cigarette packages provide information. Advertising bans can also be considered a form of information policy because they restrict the flow of information from tobacco companies while allowing government (and other antismoking groups) to provide information without competition (at least in those restricted media).

The relative effectiveness of these policy instruments is a political question of the first order. Once government adopts a goal of reducing cigarette consumption, selecting the optimal policy instruments is the key to effective policy and thus the heart of regulatory policy. The vigorous political disputes over taxes and regulation (see Fritschler and Hoefler 1995) suggests that both industry and health interests feel that some policy instruments further their goals more than others.

This study examines government efforts to regulate cigarette smoking through taxes and information, and in the process illustrates how such policies work together. During the analysis interesting questions concerning compliance with public policy are also addressed. …

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