Jon D. Hanson & Kyle D. Logue, The Costs of Cigarettes: The Economic Case for Ex Post Incentive-Based Regulation, 107 Yale L.J. 1163 (1998).
Abstract: Critics of the tobacco industry and public health advocates have long argued that the market for cigarettes should be more strictly regulated. Many market-oriented policy analysts, on the other hand, have concluded that further regulation of the cigarette market is unjustified, for 2 general reasons: First, smokers already understand the risks of smoking; and second, any negative spillover effects of smoking are matched, if not exceeded, by positive spillover effects. A paper uses a market-oriented approach to challenge the conclusion that the cigarette market functions well. It is argued that consumers are not adequately informed of the risks of smoking, that the "benefits" of smokers' early deaths have been miscalculated, and that those benefits should not in any case figure in the question of whether deterrence-based regulation is appropriate. One particular form of regulation - ex post incentive-based regulation - is likely to be especially effective in addressing the relevant sources of market failure. Such a regulatory regime might include a smokers' compensation system modeled loosely on state workers compensation programs.