Nova workboard

a blog from young economists at Nova SBE

Smoking Ban

A smoking ban is a public policy that includes criminal laws and occupational safety and health regulations which prohibit tobacco smoking in certain public places and workplaces.

Smoking bans have many origins and they are different worldwide.
Most countries focused mainly on medical consequences of second hand smoking, which, according to many researches, is almost as harmful as smoking: people who live in homes with smokers have a 20-30% higher risk of developing lung cancer than those who do not live with a smoker, while for those who work with smokers the percentage of higher risk is about 16-19.

Secondhand smoke can therefore be considered as a negative externality for the non-smoker generated by the smoker. Since we have an externality if the behavior of an agent impacts directly on the wellness of another agent, the difference in smoking policies worldwide can be in part attributed to a different consideration of the externality.
Those who focused on the harmful consequences of secondhand smoke, implemented primarily policies that are aimed to guarantee the air quality in indoor places, considering the outdoor impact of secondhand smoke negligible. This can be realized even with very severe policies: for instance, in Singapore it is not allowed to smoke in any uncovered area close to windows or other external openings that opens into or onto any interior part of the building.
On the other hand, some institutions took into consideration other factors, such as the environmental impact of smoking outdoors, for example the cigarettes left on the streets or in the parks, rather than in appropriate containers. This is a negative externality that affect the community as a whole and that generally requires more stringent policies.

In economic terms, the necessity of a policy to regulate smoking habits arises from the recognition of an externality in the economy, that cannot be managed efficiently by the agents alone.
As a matter of fact, if we consider two agents, the smoker and the non-smoker, and two goods, money and smoke, while money is a good for both agents, smoke is a good for the smoker but it is a “bad” for the non-smoker, as his benefit increases as the quantity of smoke decreases. So, if we map the indifference curves for the smoker, we see that his utility increases as the quantity of smoke and money increase; on the other hand, the utility of the non-smoker increases as the quantity of “clean air” (as an opposite of smoke) and money increase. The Edgeworth box obtained combining these two maps shows that the bundles chosen autonomously by each of the two agents lie on the opposite sides of the box instead of on the contract curve. Therefore, the two agents cannot reach a Pareto efficient equilibrium.
When the problem of externalities emerges, a solution consists in defining a clear system of property rights, for example imposing the right of the non-smoker to have clean air. In other words, if we set the initial endowment for both agents, fixing a certain amount of money and clean air, they will negotiate in order for them to maximize their utility and the optimal chosen bundle will end up lying on the contract curve: according to the Coase Theorem, the market can potentially solve externalities, if property rights are clearly assigned and negotiation is feasible.
In this sense, smoking policies help the economy in reaching a Pareto efficient equilibrium.

Silvia Salvadori



Author: studentnovasbe

Master student in Nova Sbe

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