THE COSTS OF CIGARETTES - THE ECONOMIC CASE FOR EX-POST INCENTIVE-BASED REGULATION

Critics of the tobacco industry and public health advocates have long argued that the market for cigarettes should be more strictly regulate d. Recent events suggest that those admonitions are not going unheeded . Nevertheless, many market-oriented policy analysts and efficiency-mi nded legal scholars have concluded that further regulation of the ciga rette market is unjustified, for two general reasons: First, smokers a lready understand the risks of smoking; and second, any negative spill over effects of smoking are matched, if not exceeded, by positive spil lover effects. In this Article, Professors Hanson and Logue use a mark et-oriented approach to challenge the conclusion that the cigarette ma rket functions well. They argue that consumers are not adequately info rmed of the risks of smoking, that the ''benefits'' of smokers' early deaths have been miscalculated and that those benefits should not in a ny case figure in the question of whether deterrence-based regulation is appropriate. After concluding that effective regulation of the mark et for cigarettes is long overdue, Professors Hanson and Logue explain that one particular form of regulation-ex post incentive-based regula tion-is likely to be especially effective in addressing the relevant s ources of market failure. They then sketch what such a regulatory regi me might look like, specifically suggesting a ''smokers' compensation' ' system modeled loosely on state workers' compensation programs. Fina lly, they criticize the proposed national tobacco settlement for relyi ng on the wrong sort of regulatory devices and for virtually eliminati ng tort law, the only potential source of ex post incentive-based regu lation now available.