"Health Scare," Excise Taxes and Advertising Ban in the Cigarette Demand and Supply
1985; Wiley; Volume: 52; Issue: 2 Linguagem: Inglês
10.2307/1059626
ISSN2325-8012
Autores Tópico(s)Fiscal Policy and Economic Growth
ResumoThe cigarette industry is a fascinating laboratory for industrial economists. Because of its concentrated market structure and history of conflicts over and tax issues, the industry has been the focal point of many economic studies. Most of the recent studies have concentrated on the demand side of the market. For example, Bass, Schmalensee, Hamilton and Fujii deal with the impact of advertising and the health scare on cigarette demand [4; 15; 10; 8]. Barzel, Johnson, and Sumner-Ward assessed the importance of the excise tax (or ad valorem tax) on consumers' cigarette demand [3; 12; 16]. On the supply side, Vernon-Rives-Naylor developed an econometric model of the tobacco industry [20], which, however, is more concerned with the agricultural aspects of the product than the industry's market organization. A careful review of the above studies suggests serious shortcomings which appear to limit their application to policy formulation or market analysis. First, the variables are introduced, in an ad hoc fashion without reference to existing demand (or supply) theories. Second, none of the above studies recognizes explicitly the interactions among the variables in the demand and the supply equations in the context of the determination of market equilibrium. This paper has three objectives: 1. to apply the standard neoclassical market theory to the cigarette industry; 2. to identify the interactions between cigarette demand and supply using a simultaneous equations approach, -the first such attempt in a cigarette industry study--and 3. to evaluate the effects of cigarette taxes, advertising and health scare issues on the industry's output based on the empirical results obtained from the simultaneous equations analysis.' The judicious selection of explanatory variables, careful data
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