More research out of Massey has recommended increasing government regulation. In this case, researchers found that the display case for cigarettes makes them too tempting for those trying to quit and for rebellious teenagers. As it is election year, politicians are interested in this ‘issue’ and are thinking about tightening the regulation surrounding these cigarette cases.
In order to start to analyse this problem, I’m going to use one of our old posts on porn and manipulation.
In this post, the ‘manipulation’ people talk about could occur in two separate ways:
- The person is given ‘mis-information’ by the advertising and makes a sub-optimal choice,
- The person has their choice set restricted in a binding way, such that the choice they make is worse than the choice they would have made in the non-restrictive case, even with full information.
Both of these are bad things that the government may be able to solve. In the case of cigarette cases, there is no manipulation, and their choice set is not being restricted. So we cannot say that the cigarette company is manipulating people by putting up these cases.
In fact, what the cigarette company could be doing by putting up these cases is either adding value to the product (etal McDonalds) by making it more attractive or reducing transaction costs, or making substitutes less attractive, by say covering up where the nicotine patches are or making not smoking more costly. As the externality is fully internalized by the cigarette tax, there is no reason why the company shouldn’t be allowed to have their cigarettes sitting happily in a container behind the counter if they are increasing the value of their product, however if they are decreasing the value of substitutes there may be a reason for discouraging such investment.
The Massey study implicitly assumes that these compartments are making not smoking more costly – ergo there could be a reason for the government to intervene and remove these things. [Note: You could also make a time inconsistency argument, however this inter-temporal externality can just be corrected with a tax I think, is this right rauparaha]