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Title: Cost-benefit Analysis Involving Addictive Goods: Contigent Valuation to Estimate Willingness-to-pay for Smoking Cessation

Citation Type: Journal Article

Publication Year: 2009

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Abstract: The valuation of changes in consumption of addictive goods resulting from policy interventions presents a challengefor costbenefit analysts. Consumer surplus losses from reduced consumption of addictive goods that are measuredrelative to market demand schedules overestimate the social cost of cessation interventions. This article seeks toshow that consumer surplus losses measured using a non-addicted demand schedule provide a better assessment ofsocial cost. Specifically, (1) it develops an addiction model that permits an estimate of the smokers compensatingvariation for the elimination of addiction; (2) it employs a contingent valuation survey of current smokers toestimate their willingness-to-pay (WTP) for a treatment that would eliminate addiction; (3) it uses the estimate ofWTP from the survey to calculate the fraction of consumer surplus that should be viewed as consumer value; and(4) it provides an estimate of this fraction. The exercise suggests that, as a tentative first and rough rule-of-thumb,only about 75% of the loss of the conventionally measured consumer surplus should be counted as social cost forpolicies that reduce the consumption of cigarettes. Additional research to estimate this important rule-of-thumb isdesirable to address the various caveats relevant to this study

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Authors: Thomas, Randall K.; Vining, Aidan R.; Weimer, David L.

Periodical (Full): Health Economics

Issue:

Volume: 18

Pages: 181-202

Data Collections: IPUMS USA

Topics: Health

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