The results of this analysis indicate that higher cigarette prices would result in substantial reductions in both smoking participation and average cigarette consumption among high school students. For example, if state average prices would rise by $0. 50 (i. e. 26. 5%), the youth cigarette demand can decline by 17. 5 percent: participation would drop from 27. 8 to 24. 8 percent and the average monthly consumption would decrease from 139 to 130 cigarettes. However, the choice of price variable in an equation affects the predicted reaction among high school smokers.
Given the price measures advantages, disadvantages and their subsequent performance in the cigarette demand function, the most appropriate prices for the data at hand are State Average Price and both Average Perceived Prices. Focusing on these three price measures, the total estimated price elasticity of cigarette demand fell in a range of -0. 66 to -1. 63. The estimates support the hypothesis that youth is more price responsiveness than are adults in their demand for cigarettes (adults’ price elasticity is believe to be between -0. 3 to -0. 5 according to several recent economic studies).
The study found that high school students are more responsive to the price of cigarettes as they perceive it compared to average state price or to state excise tax. If the perceived prices more accurately reflect the prices youth is paying for their cigarettes, the price elasticity of this consumer group is even higher than estimated by studies using state average price. This finding is a unique contribution of this study to the economic literature on smoking. The effect of public policies on youth smoking was measured by high school students’ reaction to Clean Indoor Air laws and to Youth Access laws.
The laws restricting smoking in various places (CIA laws) have a negative effect on both smoking probability and smoking intensity among the studied group. The effect is not statistically significant at conventional levels,25 which can be explained by less importance of the selected laws for the population being enrolled full time at school. The policies limiting youth access to cigarettes are measured by the actual level of retailers’ compliance with these laws. This unique approach eliminates the frequently cited reason for mixed findings regarding performance of these laws, which is their active enforcement.
The compliance level has a negative and statistically significant effect across various models on both probability and intensity of smoking. This robust result suggests that Youth Access laws are an important item in a public policy recipe for curbing youth smoking. Preemption of local laws by state legislature may have a positive effect on smoking probability. However, this finding, as well as findings regarding other public policies, is subject to the condition that a policy does not reflect state sentiments towards smoking. In that case, the interpretation of a policy’s effect can be problematic.
Nevertheless, their inclusion in the cigarette demand equation alleviates a potential omitted variable bias with respect to price estimates. It will be interesting to follow the smoking trends in the U. S. at the turn of the century when cigarette prices should rise thanks to the $206 billion Settlement with the tobacco industry. If the predictions of this Settlement are correct and cigarette prices increase from 25 to 45 cents over the next 25 years, then youth smoking will decline by 15. 4% – 27. 6% using the Perceived Price conservative elasticity estimate, or by 8. 8% – 15. 8% using the State Average Price elasticity estimate.