Why Do People Still Smoke, Even When It Costs Everyone?

 There are some goods which, when consumed, create an unfair burden or cost for people who have nothing to do with their consumption. In the case of smoking, this burden comes in the form of costs such as the negative health effects of passive smoking, and the increased strain on public healthcare, to provide treatment for those suffering from smoking-related health problems. In this blog post, we will explore why it is that smokers do not consider these impacts on others, and how they can be mitigated through various government policy approaches.

What is an externality? How does smoking cause an externality and why is it bad?

First, let me explain to you what negative externalities mean. Negative externalities occur when the consumption or production of a good causes a harmful effect to a third party. 

  In this scenario, smoking harms the lungs of both the smoker and the non-smoker who is nearby. Unfortunately, smokers do not compensate non-smokers for this.

  And the negative externalities of smoking go far beyond that. 

  In addition to the health problems of non-smokers, the increased public health care costs will also increase the burden on taxpayers. For example, it was estimated that the NHS spends £2.6 billion per year to treat smoking-related diseases (Public Health England, 2017).

  Litter and pollution from cigarette butts can also harm the environment. Due to the poor health resulting from smoking, it also negatively affects people's productivity and the economy: in 2014, HM Treasury estimated that smoking caused £3 billion loss in productivity due to premature death in England (HM Treasury, 2014). Globally, the world economy faces $1 trillion in costs every year due to healthcare expenditure and loss of productivity (Action on Smoking and Health, 2017).  

  As the social burdens of negative externalities accumulate, it may cause market failure. What is market failure? In economics, it is referred to as a situation where there is an excess of ‘socially bad’ products such as alcohol and tobacco, or there are inadequate amounts of ‘socially good' products such as education and healthcare in the market.

  In this case, smoking causes market failure as there is more cigarette consumption than the socially acceptable and optimal level, and this creates excessive negative externalities.

How to fix the problem? 1. What policies have already been adopted?

In order to solve this problem, the government has adopted a taxation policy on purchasing cigarettes. The government aims to reflect the cost of the harm they cause in the tax, by charging smokers an extra fee to cover the burden they create. 

  And it arguably works. Higher taxes have been shown to reduce smoking rates, especially among price-sensitive groups like teenagers. A price increase of 10% on a pack of cigarettes would reduce demand for cigarettes by about 4% for the general adult population in high income countries (Bader et al, 2011, p.4119). 

Impact of increased taxation and price on youth smoking behaviour (National Library of Medicine, 2011)

How to fix the problem: 2. What policies can be adopted?

While higher cigarette taxes reduce smoking, there are also several drawbacks. For example, higher taxes have a greater impact on lower income earners, raising concerns over fairness. It is hard to find policies that balance individual freedoms and public goals. 

 According to the Local Government Association (2023), in order to achieve the smokefree 2030 target, the government has not only promoted mandatory policies such as strict e-cigarette regulations and tobacco taxes but also provided various more user-friendly smoking cessation services. With these smoking cessation support systems, we can be confident that governments can move societies towards healthier, smoke-free lives while being fair.

Since April 2022 Hammersmith and Fulham Council has confiscated 12,500 illegal cigarettes, almost 7kg of rolling tobacco and more than 20kg of shisha from local shops (THE STANDARD, 2022).

  But here’s the twist: smoking persists. Even with sky-high taxes, dire warnings, and public bans, millions continue to smoke. Why? Maybe because of cigarettes’ addictive nature caused by nicotine, but we can explain this using economics behind the smokers’ behaviours.

Behavioural economic twist: Why do people still smoke anyway?

Those behaviours of smokers may be explained with three economic factors affecting rational decision-making:

1)         Overconfidence

  People may overestimate their health and underestimate hazards posed by smoking.

2)         Prioritising short term, or immediate pleasure

  Smokers may prioritise immediate pleasure coming from smoking, at the expense of future, long term impacts such as diseases and all financial costs for consuming a cigarette and curing the diseases. According to Ida’s 2014 research, if an individual starts to prioritise short term impacts by 1% it increases smoking probability by 0.42%, making people fail to quit smoking (Ida, 2014).

3)         Risk taking

  According to research, a smoker tends to be a risk taker, rather than being a risk averse person. Shown by Anderson and Meller’s 2008 study, being a more risk averse individual reduces the probability of being a smoker by 15.2%. In other words, being more of a risk taker increases the probability of being a smoker.

  Solving the smoking problem isn’t just about banning cigarettes. It’s about designing smart policies, understanding human behaviour, and creating environments where the healthier choice becomes the easier one.

Conclusion

 To conclude, the negative impact of smoking is undeniable in the financial burden it creates for society. Cigarettes are over-consumed, and therefore government policy must be used to mitigate this. Potential policy solutions can be found in taxation and attempts to discourage smoking through behavioural influences, such as graphic warnings required on packaging (Department of Health and Social Care, 2021).

However, the addictive nature of smoking and the self-interested nature of human behaviour mean that such policies may struggle to overcome the grip nicotine has on a significant proportion of the population.  

Reference list

Action on Smoking and Health (2017). The Economics of Tobacco. [online] Available at: https://ash.org.uk/resources/view/the-economics-of-tobacco#ref12  [Accessed 24 Mar 2025].

Anderson, L.R. and Mellor, J.M. (2008). Predicting Health Behaviors with an Experimental Measure of Risk Preference. Journal of Health Economics, 27(5), pp.1260–1274. doi: https://doi.org/10.1016/j.jhealeco.2008.05.011 [Accessed: 27 Mar 2025].

Bader et al., (2011) ‘Effects of Tobacco Taxation and Pricing on Smoking Behavior in High Risk Populations: A Knowledge Synthesis’. Int. J. Environ. Res. Public Health. 8(11). pp.4119. Available at: https://pmc.ncbi.nlm.nih.gov/articles/PMC3228562/pdf/ijerph-08-04118.pdf [Accessed 25 Mar 2025].

Department of Health and Social Care (2021). Changes to packaging requirements for tobacco products: quick read. [online]. Available at: https://www.gov.uk/government/publications/packaging-of-tobacco-products/packaging-requirements-for-tobacco-products. [Accessed: 27 Mar 2025].

HM Treasury (2014). Tobacco levy: Consultation. [online] Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/384769/tobacco_levy_consultation.pdf  [Accessed 24 Mar 2025].

Ida, T. (2014). A quasi-hyperbolic Discounting Approach to Smoking Behavior. Health Economics Review, 4(1). doi:https://doi.org/10.1186/s13561-014-0005-7 [Accessed: 25 Mar 2025].

Local Government Association. (2023) Debate on smokefree 2030 target, House of Commons, 20 June 2023. Available at: https://www.local.gov.uk/parliament/briefings-and-responses/debate-smokefree-2030-target-house-commons-20-june-2023 [Accessed 27 Mar 2025].

National Library of Medicine, (2011) Effects of Tobacco Taxation and Pricing on Smoking Behavior in High Risk Populations: A Knowledge Synthesis. Available at: https://pmc.ncbi.nlm.nih.gov/articles/PMC3228562/ [Accessed 30 Mar 2025].

Public Health England. (2017). ‘Cost of smoking to the NHS in England: 2015’. Available at: https://www.gov.uk/government/publications/cost-of-smoking-to-the-nhs-in-england-2015/cost-of-smoking-to-the-nhs-in-england-2015 [Accessed 20 Mar 2025].

THE STANDARD, (2022) London councils crackdown on illegal vapes. Available at: https://www.standard.co.uk/news/london/london-councils-crackdown-illegal-vapes-barking-dagenham-sutton-kingston-b1052907.html [Accessed 1 Apr 2025].