The social costs of smoking revisited

Peter Ellemann‐Jensen died after the preparation, but prior to the publication, of this article. At the time of his death he was a member of the Department of Economics, Odense University, Denmark, Remarks in response to specific points suggested fry anonymous referees have been added in the form of footnotes because we believe that Peter Ellemann‐Jensen would have readily acknowledged those points. A few more extensive suggestions, which would have required rewriting portions of the orignal text, could not be taken fully into account. Abstract This article may be read as a comment on and extension to the recent survey of studies of the social costs of smoking in this journal by Markandya & Pearce (1989), covering some aspects of the literature not included in that survey. Inevitably, there is a considerable amount of overlap with the material in several of the listed references, including the Markandya & Pearce (1989) survey. The article argues that the published studies based on the incidence approach to the costs of smoking, even on their own terms and accepting the stated assumptions, are erroneous, yielding cost estimates that are too high. In the appendix a simple model of the use of taxation to correct for informational error concerning a risky good is presented.