Costs and Benefits

By Eric Crampton 07/06/2014


The Ministry of Justice report on minimum pricing and excise got one big important thing right: it counted as a cost that consumers would lose consumer surplus. It balanced that against potential health savings for some and potential reductions in alcohol-related crime. While I disagreed with their underlying elasticity estimates, which led them to understate consumption losses relative to health benefits and crime reduction, the basic framework was a lot better than alternatives that ignore the costs policies impose on consumers.

Via @cjsnowdon, I find this:

He links through to Dick Puddlecote, who found the original Reuters story. It seems the FDA might start counting the costs its rules impose on consumers along with the health benefits that might obtain.

The U.S. Food and Drug Administration says in a little-noticed document released alongside its proposals for regulations in April that the projected benefits of the new rules, which also apply to cigars, hookahs and other vapor products, should be cut by 70 percent to account for the deprivation consumers would suffer.

That means if the agency puts a value of $100,000 on the longer and improved life that might be achieved by deterring someone from smoking, then it would cut that benefit assessment to $30,000 because of the pleasure they lost.

Sounds eminently reasonable, right? I mean, I could argue about it: you need a story motivating that smokers didn’t already account for the health costs when they decided to smoke. But putting some value on the smokers’ pleasure, or the vaper’s enjoyment, seems pretty reasonable. Cost-benefit analysis doesn’t work if you ignore the main costs of a policy.

Stanton Glantz doesn’t like it though.

Some public health advocates warn it will help the tobacco industry argue that the cost of complying with restrictions on new nicotine products exceeds any benefit to the public, making it easier to scuttle those rules. They also fear it could be applied more broadly to regulation of products, such as food and alcoholic beverages, that is meant to protect public health.

“This makes it a lot harder to justify regulations on cost-benefit grounds,” said Dr Stanton Glantz, a professor of medicine and a tobacco control expert at the University of California, San Francisco, who favors tough regulation of e-cigarettes and cigars. “It will undermine anything they try to do about anything.”


I’ve critiqued policy reports that ignore the costs that policies impose on consumers. It sounds like Glantz is critiquing sounder cost-benefit assessment on the basis of that it will be harder to enact regulations that would fail cost-benefit analysis.

The Reuters piece cites the Ashley, Nardinelli and Lavaty’s February piece from Health Economics that’s been in my “to blog” pile for way too long.