Cigarette smoking is the number-one preventable cause of premature death. So it is not surprising that a large number of studies have been devoted to this topic. In recent years there has also been considerable public debate on the social cost of smoking.  Many public health advocates and policy makers claim that smokers do not pay for all of the costs associated with smoking and that tobacco manufactures have misguided smokers about the benefits and costs of smoking. To recoup these alleged costs, private and public parties have sued tobacco companies. States filed the largest of these lawsuits claiming as damages the extra costs that smoking imposed on Medicaid.  In November 1998 the Master Settlement Agreement (MSA) between 46 States’ Attorneys Generals and the major cigarette manufacturers was reached where, in return for an agreement not to sue, the states obtained a commitment from the companies to pay $206 billion over a period of 25 years.

 Fueled by this debate and our opinion that much of the research about cost were only measuring partial effects Frank Sloan, Jan Ostermann, Christopher Conover, Donald Taylor, and I, with support from National Institute of Health, began a research project to measure the true social and private cost of smoking.  The result of our research is forthcoming in a book titled The Private and Social Cost of Smoking Over the Life Cycle to be published by MIT Press.

 Typically the total cost of cigarette smoking is divided into two types.  Private costs are those accruing to the individual smoker.  In economic jargon, these are termed “internal costs.”  Costs of one’s activity imposed on others are termed “external costs.”  Such costs may reflect the adverse effects of an individual’s activity (smoking, in our context) on the survival, health, and financial status of others. The financial externalities reflect the impacts of the activity on payments made by government programs, such as Medicare, Medicaid, and Social Security, as well as payments made by taxpayers to these public programs. Also included are contractual arrangements among private parties such as private health insurance, life insurance, and private pension plans. The sum of private or internal cost and external cost is termed “social cost.”