ADVERTISING RESTRICTIONS AND CIGARETTE SMOKING: EVIDENCE FROM MYOPIC AND RATIONAL ADDICTION MODELS

Abstract

Because of the high social cost of cigarette smoking, many countries impose advertising restrictions to reduce cigarette consumption. Yet previous studies conclude that advertising constraints have been ineffective at reducing cigarette smoking. This conclusion is incorrect because it ignores the fact that advertising restrictions have supply as well as demand effects. The authors extend existing research by showing that advertising regulations, especially those found in the recent National Tobacco Settlement, have decreased the equilibrium level of cigarette consumption in the United States, a result that holds for both myopic and rational addiction models. (JEL L50, L66, M37 )