Jon Hanson
No. The proposed resolution reflects another in a long line of examples of the industry’s efforts to make itself subject to ineffective administrative regulations that preempt tort law and other forms of potentially effective regulation.

A key flaw in the proposed resolution and in the draft bills now on the table is that they would allocate the bulk of industry charges — whether they be taxes, fines, or damages — to the industry on roughly a fixed basis. Although those charges would likely reduce the quantity of cigarettes smoked, they would not have a significant beneficial effect on the design, manufacturing, and marketing decisions of cigarette manufacturers. Because the charges would be fixed, or a function of industry-wide variables, no manufacturer would enjoy the full benefits of any safety-enhancing investments that it might make. Each manufacturer’s profit-maximizing strategy would be to cut investments in safety because all of the benefits of doing so would go to that manufacturer while the costs would be shared by other members of the industry.

The surest way to encourage manufacturers to lower the total costs of cigarette-caused harms would be to allocate losses to manufacturers in proportion to the relative riskiness of those manufacturers’ particular brands. Such an allocation stands the best chance of transforming market forces into the ally (or less clearly the enemy) of public health.

W. Kip Viscusi
I oppose the national resolution because there is no legitimate economic rationale for such a payout. The impetus for this settlement is that the cigarette companies sought a safe harbor from the state attorneys general’s lawsuits. The settlement does a disservice to the shareholders in the cigarette firms. Any sound economic accounting indicates that cigarettes more than pay their own way. Although unfavorable lower court rulings with regard to what gets counted and what does not could alter this conclusion, the soundness of the economic logic in support of the cigarette industry’s position suggests that both the national agreement approach as well as the out-of-court settlements with the states may be an unduly conservative strategy.

The proposed resolution and other draft legislation also include a variety of other provisions. Targeted regulatory restrictions to decrease youth smoking and other regulatory components of the proposed resolution are uncontroversial, but there has never been the need for litigation and billions of dollars of lawyers’ fees to pass such legislation.

The financial payout of $368.5 billion is structured in a manner that makes it equivalent to boosting the per-pack excise tax, which already exceeds the net social costs of cigarettes. The prospects of this tax windfall, which has no legitimate basis, will likely lead politicians to demonize cars, guns, barbecue grills, gasoline lawn mowers, and other risky products.