Hanson Responds to Viscusi
Professor Viscusi’s responses contain several tensions. For example, he claims that compensation would remove from smokers the "proper incentives" by providing injured smokers a windfall. But that claim does not square easily with his observations that compensation would require smokers to pay a higher price for cigarettes and that compensation would often be for fatal diseases. Additionally, a careful reading reveals that Viscusi’s conclusions rest on conflicting views of both legislatures and juries. Finally, Viscusi begs two telling questions when he asserts that "there has never been the need for litigation and billions of dollars of lawyers’ fees" to pass certain types of "uncontroversial" restrictions on youth smoking: first, why were such restrictions never previously passed?; and, second, why doesn’t Viscusi view those restrictions as "wrong-headed" or illegitimate given that smoking is self-financing and that underage smokers overestimate the risks?

My main disagreement with Viscusi stems from his narrow and peculiar definition of deterrence. His analysis downplays certain conventional deterrence goals, such as encouraging manufacturers to produce safer cigarettes. More generally, he wrongly indicates that there can be no deterrence justification for regulating a product that is, in the aggregate, "self-financing."

Just because an analysis is cold and abstract does not imply that it constitutes good economics, much less sound policy analysis.

Viscusi Responds to Hanson
Proper economic accounting shows that on balance there is a cost savings to all states from smoking. While this result may not be a pleasant message, it underscores the fallacy of using social financial cost arguments in instances in which such costs do not exist. Even if one arbitrarily excluded the negative insurance cost effects, my estimates show that recognizing excise taxes alone makes cigarettes self-financing for every state. Since the proposed settlement is tantamount to an excise tax, there is no conceptual reason to disregard the taxes already paid.

My 1992 book, Smoking: Making the Risky Decision, proposed a system for comparative cigarette risk ratings, and Professor Hanson’s tax based on riskiness is in the same vein. It is noteworthy, however, that each of our approaches is at odds with the state lawsuits and the views of many public health officials, who inexplicably deny that there are differences in cigarettes’ riskiness.

As for smoking risk beliefs, over 90 percent of the adult population overestimates the risks of smoking. Tort law remains guided by the "reasonable person" standard, not by concern with the few people locked in a cave for the past half century. Knowledge of the substantial hazards of smoking is not insider information possessed only by anti-smoking zealots.