The U.S. Tobacco Buyout: A Partial and General Equilibrium Analysis

Abstract

This article analyzes the impact of removing the U.S. tobacco program in both a partial and general welfare economics framework. In a partial-equilibrium framework, a consumer tax-funded quota buyout can result in producer gains, consumer losses, net losses resulting from higher prices, and deadweight losses. In a general-equilibrium framework, society can gain from the buyout resulting from considerable potential savings from reduced healthcare costs attributable to a reduction in smoking. Additionally, we present a model that addresses the addictive qualities of tobacco while considering the effects of the quota buyout. We also conclude that another possible effect of the buyout is an increase in worker productivity because employees who are able to quit smoking reduce the amount of smoking-related sick days taken.

Benefit-cost analysis: government compensation vs. consumer tax model

“…The latter comes about because of effective lobbying on the part of producers. In the tobacco case, for example, politicians supported the termination of the tobacco quota program with compensation to producers for several reasons: 1) historically, federal assistance was needed to stabilize and increase tobacco producer income (this was the reason the quota program was implemented in the first place); 2) there was a belief that once the tobacco quota program was eliminated, producers would need assistance reallocating resources and/or transitioning to a free market system (Womach, 2005); and 3) the termination of the tobacco quota program via a consumer tax would appeal to health advocates (e.g., the American Cancer Society) because it would cause the price of tobacco products to increase, thereby reducing consumer demand (Schmitz, Haynes, Schmitz, & Schmitz, 2013).…”

EU climate plan sacrifices carbon storage and biodiversity for bioenergy

“…To stop this expansion, Europe must reduce its land carbon footprint even more by reducing its meat and milk consumption 2,5 . The average European consumes four times more meat and milk than does the average person in poorer countries, which will hold 60% of the global population in 2050 (ref.…”

The Not-So-Simple Economics of Production Quota Buyouts

“…But, under the alternative formulation, higher taxes on cigarettes make smokers better off; the government is helping them achieve the self-control that they cannot achieve through the private market.” Thus, when conducting BCA, the manner in which consumer losses are calculated and incorporated can have considerable impacts on the estimated BCR. Similarly, the inclusion of health care costs (savings) can also drastically change estimated BCRs (Schmitz et al, 2013). BCRs can vary by a factor of 17, depending on the magnitude of the consumer surplus and associated health costs (A. Schmitz, D.J.…”

“…Similar to the United States, the Great Depression had ravaged the Canadian agricultural industry, and the OFCTMA was put in place to control prices and conditions of sale. It was not until 1957, however, that a true supply management program was established under the Ontario Flue-Cured Tobacco Growers’ Marketing Board (OFCTGMB) (for details on the function of the OFCTGMB, see Elgin County, 2013; Schmitz et al, 2015; Schmitz, Haynes, and Schmitz, 2015).…”