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/Improving the fire safety of cigarettes QC100 .U5753 N0.1242 1988 V198 C.1 NBS-P

NBS Technical Note 1242

Improving the Fire Safety of Cigarettes:

An Economic Impact Analysis

Ruegg, Weber, Lippiatt, and Fuller

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Tm he National Bureau of Standards 1 was established by an act of Congress on March 3, 1901. The Bureau's overall JL 8oal IS t0 strengthen and advance the nation's science and technology and facilitate their effective application for public benefit. To this end, the Bureau conducts research to assure international competitiveness and leadership of U.S.

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Ctaoo

NBS Technical Note 1242

Improving the Fire Safety of Cigarettes:

An Economic Impact Analysis

Rosalie T. Ruegg, Stephen F. Weber, Barbara C. Lippiatt, and Sieglinde K. Fuller

Center for Applied Mathematics

National Engineering Laboratory

National Bureau of Standards

Gaithersburg, MD 20899

This research was funded under the

Cigarette Safety Act of 1984.

January 1988

X CO *<

U.S. Department of Commerce

C. William Verity, Secretary

National Bureau of Standards

Ernest Ambler, Director
National Bureau of Standards U.S. Government Printing Office For sale by the Superintendent

Technical Note 1242 Washington: 1988 of Documents,

Natl. Bur. Stand. (U.S.), U.S. Government Printing Office,

Tech. Note 1242 Washington, DC 20402

91 pages (January 1988)

CODEN: NBTNAE
Acknowledgements

The authors are grateful to Richard Gann and the other members of the Technical Study Group and to Colin Church

and members of the Consumer Product Safety Commission

for their useful ideas and suggestions throughout this research effort. Special gratitude is owed to John Krasny of the National Bureau of Standards Center for Fire Research

for providing technical background on the cigarette ignition

of mattresses and furniture, to Alexander Spears of Lonllard,

James Charles of Philip Morris, Alan Rodgman of R. J. Reynolds, and Preston Leake of American Tobacco for assistance in gathering data on the cigarette manufacturing

process, and to Joseph Cullen and James Callahan of the

National Institutes of Health for advice on health issues. The

authors also appreciate the timely reports and technical assistance given by the contract consultants to the project:

John Hall (fire loss data), Daniel Sumner (tobacco farming),

Armando Lago (industry cost data), Gary Ford, John Brown,

and John Calfee (consumer issues), Gerry Oster (health), and David Greenberg (employment).

The authors have also benefited from the many helpful

comments made by the NBS reviewers of the report: Harold

Marshall, Frederick Johnson, and Kenneth Gordon.

Contents

Acknowledgments iii List of Tables vi Executive Summary vii

1 .0 Introduction 1

1 .1 Background 1

1 .2 Purpose and Organization 1 1.3 Technical Approach and Scope of Study 1 2.0 Cigarette Modifications 5

2.1 Five Hypothetical Cigarette Modifications 5

2.2 The Baseline Cigarette 5

3.0 Potential Impacts 7

3.1 Sources of Impact 7 3.2 Types of Impact 7

3.2.1 First-Order Impacts: Reductions in Cigarette-Fire Losses 8

3.2.2 Second-Order Impacts 9

4.0 The Economic Impact Model 13

4.1 The Supply and Demand Equilibrium

Model 13

4.1.1 Model Structure: Structural Equations,

Endogenous and Exogenous Variables,

Parameters, and Solution Equations 13

4.1.2 Data Requirements for the Supply and

Demand Model 15

4.1.3 Immediate Impacts Provided by the Supply and Demand Model 16

4.2 Fire Loss Impacts 16

4.2.1 Fire Loss Data Requirements 17

4.2.2 Projection of Baseline Annual Cigarette

Consumption 17

4.2.3 Fire Loss Impact Model and Linkage to the Supply and Demand Model 18

4.3 Health Impact Model 18

4.3.1 Data Considerations 18

4.3.2 Requirements of the Model 20

4.3.3 Eight-Step Modeling Procedure 20

4.3.4 Linkage to the Supply and Demand

Model 22

4.4 Employment Impacts 23

4.4.1 Data Requirements for Employment

Impacts 23

4.4.2 Employment Impact Model and Linkage

to the Supply and Demand Model 23

5.0 Impact Analysis Results for Five

Hypothetical Cigarette Design

Modifications 25

5.1 Data Used in the Impact Analyses 25

5.1.1 Supporting Data Studies 25

5.1.2 Data Used to Solve the Supply and

Demand Model 26

5. 1 .3 Fire Loss Data 26

5. 1 .4 Health Impact Data 26

5.1.5 Employment Data 28

5.2 Format of the Impact Analysis

Reports 28

5.3 Results of the Analysis 32

5.3.1 Decrease in Circumference 32

5.3.2 Increased Use of Expanded Tobacco 37

5.3.3 Chemical Additive to Tobacco Blend 39

5.3.4 Increased Paper Weight 40

5.3.5 Decreased Paper Porosity 40

5.4 Sensitivity of Results to Key

Assumptions 40

5.4.1 Time Required (Grace Period) for Implementing the Design Modification 40

5.4.2 Length of the Study Period 41

5.4.3 Value of the Discount Rate 41

5.4.4 Change in the Demand for Modified

Cigarettes 41

5.4.5 Change in Tar, Nicotine, and Carbon

Monoxide Content of Modified

Cigarettes 42

5.5 Summary 42

References 45

Appendix A Derivation of the Solution Equa

tions for the Supply and

Demand Equilibrium Model 47

Appendix B Specification of the Health Impact

Model 49

Appendix C Detailed Results of the Economic Impact Analysis 59
List of Tables

Table 2.1 Five Cigarette Modifications

Selected For Impact Assessment 5

Table 4.1 Structural Equations of the Supply and Demand Model in Proportional Change Form 14

Table 4.2 Definitions of Endogenous

Variables Used in the Supply and

Demand Model 14

Table 4.3 Definitions of Parameters Used in the Structural Equations and in the Computation of the Immediate

Impacts of the Supply and

Demand Model 15

Table 4.4 Definitions of Exogenous Variables

Used in the Supply and Demand Model .... 15

Table 4.5 Equations Used to Compute the

Solution Values for the Endogenous

Variables, in Order of Computation 16

Table 4.6 Equations Used to Compute Immediate

Impacts of the Supply and Demand Model . .17

Table 4.7 Actual and Projected Total and Per

Capita Consumption of Cigarettes 17

Table 5.1 Definitions, Range, and Values of Parameters Used in the Supply and

Demand Model 27

Table 5.2 Percentage Changes in Tobacco

Content, Paper Costs, and Other Costs for Selected Cigarette Modifications . . .27

Table 5.3 Definitions, Range, and Values of Endogenous Variables Used in the Supply and Demand Model 28

Table 5.4 Baseline Data Used to Compute

Fire Loss Impacts (per Billion Cigarettes

Consumed) 28

Table 5.5 Health Data Used in the Health

Impact Model: Costs of Smoking 30

Table 5.6 Health Data Used in the Health

Impact Model: Benefits of Quitting 31

Table 5.7 Data Used in the Health Impact

Model: Number of Smokers, by Age,

Sex and Smoking Level 32

Table 5.8 Health Impact Model: Results 32

Table 5.9 Data Used to Compute Direct and Indirect Employment Effects 33

Table 5.10 Illustration of Impact Analysis

Reports Presented in Appendix C 34

Table 5.11 Impacts of Decreasing Cigarette

Circumference from 25 to 21

Millimeters: Summary 35

Table 5.12 Impacts of Increasing the Percentage

of Expanded Tobacco from 25 to 50

Percent: Summary 36

Table 5.13 Impacts of Addiog Chemical to Tobacco Blend: Summary 37

Table 5.14 Impacts of Increasing Cigarette Paper

Weight from 24 to 32 Grams per Square Meter: Summary 38

Table 5.15 Impacts of Decreasing Paper Porosity

from 35 to 10 Coresta Units: Summary 39

Table B.1 Notation for the Health Impact

Model 47

VI
Executive Summary

In response to requirements of the Cigarette Safety Act of 1984, this report investigates potential economic impacts of modifying cigarettes to reduce their ignition propensity. It identifies impacts which appear likely to result from altering

major physical characteristics of cigarettes: tobacco blend,

paper, and size. It develops a quantitative model for estimating first- and second-order impacts. First-order impacts are changes in smoking-related fire losses, including

estimates of the change in lives (and life years) lost, injuries

incurred, and property damage. Second-order impacts are changes which may result if modifying the ignition propensity of cigarettes inadvertently modifies other cigarette

attributes. The following second-order impacts are estimated

by the model: cigarette industry impacts, including changes

in the price of cigarettes, cigarette sales volume, and

industry revenue; tobacco farming impacts, including

changes in the price of tobacco, tobacco sales volume, and

farm revenue; smoking related health impacts, including

changes in lifetime medical costs and life expectancies; consumer surplus impacts; employment impacts; and excise

tax revenue impacts. A number of case analyses are performed, quantitative results are presented, and implications of the findings are discussed.

Because this assessment precedes any action to alter the

ignition propensity of cigarettes in the marketplace, it must

be predicated upon a number of assumptions. The need to make assumptions- such as assumptions about how

cigarettes might be modified physically to reduce their igni- tion propensity, the extent of and time required for the changeover, and the reaction of manufacturers and consumers to an altered product-was a recognized condition and limita- tion of the study, and one that should be kept in mind in reading the report. To help meet the extensive data requirements for performing quantitative impact assessment, the Technical

Study Group (TSG), commissioned by Congress to implement research requirements of the Cigarette Safety Act, engaged under separate contract seven consultants, experts

in their respective six fields. The TSG made available to the authors the data and reports developed by these

contractors. (See Reports 5 and 6, Technical Study Group.)

The accuracy of these data has not been verified by the

National Bureau of Standards.

Given the necessity to make a number of assumptions

and to use data to which varying levels of confidence can be attached, the findings are subject to uncertainties. To

reflect these uncertainties, case analyses based on alternative assumptions are shown, as well as the results of extensive sensitivity testing.

These caveats notwithstanding, the following major points can be drawn from the analyses:

• If cigarettes were to be made completely fire safe, each

year about 1500 people fewer would die in fires, roughly

7000 fewer people would be injured in fires, and nearly

half a billion dollars in property losses would be avoided.

To the extent that the fire hazard of cigarettes is not completely eliminated by reducing their ignition propensity, savings will be proportionately lower.

• The savings potential from fire-safe cigarettes is estimated

to decline gradually over time, but is likely to remain rela- tively strong over at least the next 10 years. A projected

downward trend in cigarette consumption, an increase in the prevalence of fire-resistant bedding and upholstery,

and improvements in fire mitigation technologies are esti- mated to diminish deaths and injuries from cigarette fires by 20 to 25 percent and property losses by about 10 per- cent by the mid-1 990's.

• If, in the process of modifying cigarettes to change their ignition propensity, other attributes were to be changed,

impacts beyond the intended reduction of cigarette-fire losses will likely result. — A change in the mix or quantities of raw materials,

labor, and/or production processes for manufacturing

cigarettes would change the relative demand for the

factors of production used in cigarette production. — A change in the cost of producing cigarettes could

affect their pricing and therefore their consumption. — A change in smoking attributes, such as taste, appearance, handling characteristics, and potency could affect consumer demand and therefore cigarette consumption. — A change in chemical potency could directly affect the

health consequences of smoking by changing the delivery

of tar, nicotine, carbon monoxide, and other chemicals in cigarettes. • Five hypothetical methods of modifying cigarettes (listed in the first column of the summary table on page ix) are used in this study to facilitate model development, to allow

identification of the types of potential impacts, and to test

VII
the order of magnitude of impacts which might result from

representative modifications to cigarettes.

• The five modifications are estimated to cause only small percentage changes in the supply price of cigarettes. Two

of them are estimated to entail a small reduction in the

cost of producing cigarettes; two, a small increase in production costs; and, one, to be approximately neutral in

its cost consequences.

• Several of the modifications are estimated to have a

significant direct effect on the raw materials, labor, and

production processes for manufacturing cigarettes. Two of the modifications are estimated to require substantially

less tobacco, but one of these is estimated to require more expandable tobacco than existing cigarettes. One of the modifications is estimated to require increased use of expansion processing. One is estimated to require a chemical additive. One is estimated to require considerably more paper. And all are estimated to require

machinery adjustments and/or machinery and equipment

replacements, possible downtime and lost production, and

process changes.

• The effects of the five hypothetical modifications on consumer demand and on health from possible changes

in cigarette potency are unknown, and are treated in the study only in the context of sensitivity analysis. Potentially, consumer demand and direct health effects could be

important. The impact model is capable of taking these

effects into account, if reliable data are available.

• For each of the five modifications, the table on page xiii summarizes analysis results, based on assumptions listed at the bottom of the table. Principal observations to note from the table are the following: — Identical estimates of first-order impacts (based on the assumption of 75 percent reductions in cigarette-fire

losses) are shown for each modification in lieu of laboratory-based performance data. As performance

results become available, these first-order impacts should

be adjusted accordingly.

- Cigarette production cost change j in the range of -3% to +2% drive the second-order impacts shown in the table. Changes in cigarette potency are ignored, as

well as non-price changes, such as taste, which may

influence the demand for cigarettes.

- Decreased circumference is estimated to lower production costs by about 3 percent, principally through lower

tobacco content in cigarettes. The resulting impacts are estimated to be a 15 percent reduction in annual revenue

from tobacco farming, a 3 percent reduction in annual

cigarette industry revenue, a 1 percent increase in annual

federal excise tax revenue, a one percent increase in life- time smoking-related health costs, a 4 percent reduction

in full-time equivalent tobacco-industry jobs, and an

annual increase in consumer satisfaction (due to the esti- mated lower price) of $660 million.

- Reducing the tobacco density in the cigarette is esti- mated to lower production costs by about 1 percent, as

lower tobacco requirements are estimated to more than

offset higher processing costs. The resulting impacts are estimated to be a 6 percent reduction in annual farm

revenue; a 1 percent or less reduction in annual cigarette

industry revenue, annual federal excise tax revenue, and

full-time equivalent employment; a less than 1 percent

increase in lifetime smoking-related health costs; and a $290 million annual increase in consumer satisfaction. — Adding a chemical to the blend to cause self- extinguishment is estimated to increase production costs by about 2 percent. (This, of course, would vary depending on the chemical selected for study.) The

resulting impacts are reductions of 1 percent or less in annual farm income, annual federal excise tax revenue,

lifetime health costs, and full-time equivalent jobs; a 2 percent increase in cigarette industry revenue; and an

annual loss in consumer surplus of $380 million. — Changing the paper, either by increasing weight or by

decreasing porosity, is estimated to have little impact in the second-order impact categories shown, because

paper constitutes a very small percentage of the total cost

of a cigarette. However, increasing the paper weight would

be expected to have impact on the paper industry, an

industry impact outside the scope of the study. — When second-order impacts are limited to those driven

by changes in production costs (potency changes and

possible shifts in consumer demand are ignored), the

modification having the largest estimated second-order

impacts is decreasing cigarette circumference (15%

reduction in tobacco farm revenue and 4% reduction in tobacco-industry employment); and the modification with the smallest impact is decreasing paper porosity (no

impact within the categories included). — Changes in lifetime smoking-related health costs esti- mated to result from decreasing the production cost of cigarettes are no more than 1 percent of the base. But, because the estimated base is very large, a one percent

change translates into about $600 million in lifetime medical costs and 300 thousand life years (present value

dollars and years discounted at 5%). [For perspective, a 75% reduction in cigarette fire deaths is estimated to save about one-half this number of life years over a 10-year

period.] — The small percentage changes in cigarette supply

prices are estimated to cause relatively small secondorder impacts in terms of percentage changes in base

numbers; in absolute terms, however, some impacts

appear large. Not shown in the table are possible impacts resulting from

changes in cigarette potency attributable to cigarette

design modifications. Potency changes may change

health risk exposure. Because changes in exposure apply

to all modified cigarettes (not just to the change in consumption), changes in potency have large potential health impacts. Increases in potency may increase health

costs; decreases in potency may decrease health costs. Inadequate data on the relationship between changes in the chemical composition of cigarettes and health risk exposure prevented quantitative estimation of this impact,

beyond sensitivity testing. The model, however, has the

capability of treating potency changes if data become

available. Also not shown in the table are impacts estimated to result from shifts in the level of consumer demand due to

VIII
changes in taste, handling characteristics, and other

factors related to consumer demand. There is little basis

for specifying shifts in demand for these modifications,

though sensitivity analysis can be used to demonstrate

the effect of hypothetical demand changes. Decreasing

demand can be expected to have negative impacts on

the farm sector, the cigarette industry, excise taxes, and

employment, and positive impacts on health; increasing

demand, the opposite impacts. For example, if lowering

the tobacco content (by decreasing circumference or tobacco density) were to cause a small decrease in demand for cigarettes, the reduced demand would offset to some extent several of the second-order impacts shown

in the table for these two modifications, namely the

increased health costs and the increased consumer

surplus, and would amplify other second-order impacts,

namely, the decreased farm revenue, cigarette revenue, and employment.

Certain impacts are likely to be highly concentrated

regionally: primarily farming and cigarette manufacturing

impacts and tobacco-industry employment impacts.

It is important to note that the modifications included in

the study are not necessarily the best approaches for improving the fire safety of cigarettes. They were designated

for use in the economic analysis by the Technical Study

Group in order to cover principal physical characteristics of cigarettes which can be altered. Structuring the model to handle these modifications required that versatility be built into the model, making it capable of treating changes in any

major cigarette component. Other cigarette modifications

which may be proposed at a later time can be evaluated

with the economic impact model, if specific cost data are provided in the required format.

It is also important to place the findings of the study in proper perspective. The purpose here is to assess the impacts that might arise from making fire-safe cigarettes, not

to advocate the pursuit of impacts other than the objective of

fire safety. Other objectives should be judged on their own

merits. Understanding the secondary, as well as the primary,

consequences of actions is essential for sound policy

development. To the extent that undesired second-order

impacts arise, it may be possible by tax policy, by statute, or by technological innovation to neutralize them, such that the

benefits of fire safety are not eclipsed by other impacts.

Estimated Impacts of Five Cigarette Design Modifications: Summary Comparison

First-Order Impacts Second-Order Impacts

Cigarette Fire-Loss Reductions Change in Change in Change in Change in Lifetime- Change in Full-time

in Year 1 (Based on

Uniform 75% Reduction Tobacco

Farming Revenue

Cigarette

Industry Revenue

Fed. Excise Tax RevenueChange in Consumer

Surplus

Smoking-Related

Health Costs

Equivalent Jobs in Tobacco-Related

Industries Medical Expected

Lives Injuries

Property

Loss Avoided

in Year 1 in Year 1 in Year 1 in Year 1 Costs Life-Yrs.

in Year 1

Modification

Decreased

Saved Avoided mill.S % mill.S % mill.S % mill $ mill.S % mill.S (1000) °/o Jobs

Circumference 1200 5600 350 -15 -330 -3 -500 1 50 660 1 570 -260 -4 -6200

Decreased Tobacco Density 1200 5600 350 -6 -140 -1 -210 20 290 250 -110 -1 -1400

Chemical Additive

to Blend 1200 5600 350 -10 2 290 -1 -30 -380 -300 170 -500

Increased Paper

Weight 1200 5600 350 70 -90 -70 40 400

Decreased Paper

Porosity 1200 5600 350

ASSUMPTIONS: - Uniform 75% reduction in smoking-related fire losses to be achieved by each modification. - Supply price fully reflects changes in production costs. - Percentages rounded to nearest integer; millions of dollars rounded to nearest 10 million; numbers of lives, injuries, and jobs rounded to nearest hundred; life-years rounded to nearest thousand. Percentages in the range -0.04 to +0.04 are shown as

zeros. — Quantity of cigarettes demanded is affected only by price. — Changes in cigarette potency are ignored. — Immediate implementation. - Percent changes in cigarette production costs: decreased circumference -3%; decreased density -1%; chemical additive +2%:

increased paper weight +1%; decreased paper porosity 0%.

IX

1. I ntroduction

1.1 Background

The Cigarette Safety Act of 1984 (Public Law 98-567; Stat. 2925, October 30, 1984) created the Technical Study Group

(TSG) on Cigarette and Little Cigar Fire Safety to investigate the technical and commercial feasibility, economic impact,

and other consequences of developing cigarettes and little cigars with "minimum propensity" to ignite upholstered furni- ture and mattresses. The TSG requested that the Applied

Economics Group (AEG) of the National Bureau of Stan- dards (NBS) perform the economic impact analysis, and

arranged for the study to be done under an Interagency

Agreement between NBS and the Consumer Product Safety

Commission (CPSC) (IAG-74-25, Task Order No. 86-2 (86-

1198)). The agreement called for an analysis of economic

impacts to be performed and a report of findings to be

prepared by the AEG for the TSG in a written form suitable

for inclusion by the TSG in its final reporting to Congress.

This is the report on the economic impacts.

1.2 Purpose and Organization

The purpose of this report is to: (1) identify potential

economic impacts from reducing the ignition propensity of cigarettes, (2) describe an approach and present a model

for assessing economic impacts, and (3) give findings for selected case analyses.

The report is organized into five main sections, 3 appendices, and an executive summary. The remainder of section

1 outlines the technical approach, describes the scope of the study, and discusses some constraints. Section 2

describes five hypothetical modifications to cigarette design

which are later used in the case analyses. Section 3 explains

why modifying cigarettes in various ways would be expected

to have economic impact, and identifies major categories of impact. Section 4 discusses the economic impact model

which was developed to enable quantitative evaluation of the impacts of modifying cigarettes. Section 5 presents all the

input data and the results for selected case analyses,

discusses the sensitivity of findings to key data and assumptions, summarizes the impact analyses, and discusses impli- cations. The three appendices give additional information on

the economic impact model and results of the case

analyses: appendix A derives the solution equations of the supply and demand equilibrium model; appendix B lists equations of the health component of the economic impact

model; and appendix C shows detailed tables of impact

from which summary tables in section 5 were prepared.

Supporting studies performed for the TSG by consultants are referenced in section 5, and are provided in Reports 5 and

6 of the TSG reports.

1.3 Technical Approach and Scope

of Study

This study employs conventional techniques of benefit-cost analysis as set forth by Mishan and as described by

Thompson. 1 This kind of approach entails identifying and

valuing positive impacts (benefits) and negative impacts

(costs) resulting from alternative courses of action, from the perspective of the decision maker, with the objective of assisting the decision maker to choose among the alternatives. Because in this application most categories of impact

may be either positive or negative depending on the partic- ular cigarette modification evaluated, and because multiple

units of valuation are used rather than the monetary unit customary in benefit-cost analysis, the term "impact" is used

to denote all changes rather than the terms "benefit" and

"cost," and the study is termed an "impact analysis."

Familiarity with the general approach of impact or benefit- cost analysis is useful for understanding this study. Therefore, a brief overview of the approach and a discussion of some key issues are given before turning to the specifics of the study.

The simplest and most manageable form of benefit-cost analysis is that applied to a private sector decision where all effects may be combined and expressed as a single kind of

effect, measurable in dollars. An example is an analysis of the impacts of alternative plant locations on the accounting

profitability (net benefits) of a company. Benefit-cost analysis

in support of public decisions, in contrast, tends to encompass broader concerns and multiple dimensions

1 See E. J. Mishan, Cost-Benefit Analysis: An Introduction (New York, NY: Praeger Publications, 1976); and Mark S. Thompson, Benefit-Cost Analysis for Program Evaluation (Beverly Hills, CA: Sage Publications, 1980.)
which cause greater complexity and often give rise to

difficulties both in theory and in practice.

The variety of concerns addressed by public program

analysis causes the accounting profitability approach of the

private company to be inadequate in most cases. For example, effects such as air pollution, which may be external

to a private sector evaluation, are important factors to be

included in public decision analysis. Effects in one sector may be offset to some extent by compensating effects in other sectors. Beyond the direct and indirect effects of an

action, there may be important "global effects" to consider in a public sector program decision that do not arise in the

analysis of private sector programs. Global effects reflect a

special societal perspective beyond the simple aggregation

of individual effects, such as public satisfaction that the disadvantaged are cared for; they arise solely from people's

knowledge that the impact exists. As more impacts are considered, it becomes increasingly

difficult in practice to express all impacts in monetary units acceptable to a body of decision makers. 2 Distribution

effects further complicate the analysis as some people, groups, or sectors lose and some gain, and associated

questions of equity (fairness) arise. Even if all impact values were to be commensurable (measurable in the same units, such as dollars), and even if there were no problems of overlapping effects which would cause double counting of impacts, it would not be correct to aggregate all impact measures in a public program analysis unless a clear set of weights exists. As. Thompson points out, when the analyst is unsure of the relative importance the decision maker places on different kinds of effects, a recommended approach is to report estimates of the various impacts separately,

combining only those that are clearly commensurable. 3 This study is characterized by multiple impacts, not all of which can practically be valued in dollars. In addition, distri- bution issues arise as some groups lose and some gain

from a given modification in cigarette design. Impacts are analyzed by category, without aggregation across categories. Impacts are not aggregated for three major reasons:

(1) Different units of measure and different periods of coverage;

(2) The fact that impacts in one segment might cause compensating impacts in other segments, not fully accounted for in the impact model; and

(3) The assumption that a unit change in impact in one

sector is not necessarily to be weighted equal to a unit change in another sector.

2 ln performing benefit-cost analysis, an attempt is usually made to value impacts in dollars because this has the advantage of allowing

diverse impacts to be compared, and a measure of overall impact

(e.g., net benefits or benefit/cost ratio) computed for each course of

action. ^Thompson, Benefit-Cost Analysis, p. 80.

It is left to the decision maker to make trade-offs among

the different impacts.

Other aspects of the technical approach are summarized

under applicable subheadings below:

Cigarettes Only: The study treats cigarettes only, omitting

little cigars which are also referenced in the legislation, for two reasons: (1) cigarettes are by far the dominant smoking

material in smoking-related fires, and (2) data are more

readily available for cigarettes than for cigars. Omitting little cigars from the study is consistent with the decision of the TSG, and is expected to result in an insignificant understate- ment of total impact.

Cigarette Modifications: Related studies of cigarette igni- tion propensity were carried out concurrently with the economic impact assessment. Results of the studies of technical feasibility were not available until near the end of the economic study. In order to carry out the economic impact

analysis, it was necessary to select hypothetical cigarette

design modifications for study without knowing their predicted impacts on fire losses. Five modifications were

selected upon which to base the econnmic impact analysis,

using two criteria:

(1) The hypothetical modifications were to be promising

methods of reducing ignition propensity; and

(2) Together the hypothetical modifications were to cover the major physical descriptors of cigarettes -tobacco blend,

paper, and size.

Because the economic impact model is designed to address

all of these aspects of cigarettes, it is sufficiently flexible to accommodate other modifications that might be proposed at a later time.

Ignition Performance Results: In the absence of completed laboratory analysis of the ignition propensity, the economic impact analysis was performed based on three

alternative percentage reductions in fire losses: (1) 25

percent, (2) 50 percent, and (3) 75 percent. This approach

provides benchmark levels of performance against which

performance estimates based on laboratory results can be

compared when they become available.

Types of Impacts and Sectors of the Economy Covered:

An objective of the study is to cover the more significant

impacts of the hypothetical modifications on designated

sectors of the economy. Of prime interest are the impacts on

the general public from having fewer smoking-related fires. Also of interest are potential second-order impacts, such as impacts on the cigarette industry from changes in production costs and sales, on tobacco farmers from changes in demand for leaf tobacco, on consumers from changes in smoking, on workers from changes in employment opportunities, and on the Federal government from changes in ex- cise tax revenue. There may be impacts on other industries not covered, such as the paper industry, chemical industry,

and machinery industry, but these are expected to be less
important and are beyond the scope of coverage of this study. Changes in the costs of paper, chemical additives,

and machinery replacements resulting from cigarette modifi- cations are taken into account in the impact calculations for the cigarette industry.

Modeling: To allow quantitative estimation of economic

impacts, a mathematical economic impact model was devel- oped. It consists of a series of integrated modules which

represent each of the above sectors of the economy to be

studied. It is an equilibrium model in the sense that a stable economic condition is assumed before and after the fire- safety of cigarettes is changed. The availability of data was

taken into account in developing the model so that it could

be applied to produce quantitative estimates. Although the

model can be exercised with data different from that used in the case examples, it requires that the same data structures be used. This model is the most comprehensive available for estimating a wide variety of impacts that can result from

changes in cigarette design, production costs, and demand.

Case Examples: Thirty separate analyses were performed

by executing the economic impact model with selected data

and assumptions. The results are intended to suggest the order of magnitude of impacts under alternative conditions. For conditions other than those specified, different results would be obtained from the model.

Data: Much of the data used in executing the economic

impact model for the case examples are from supporting

studies, performed by consultants engaged under separate

contract by the CPSC with approval by the TSG. These data

are presented and described in volumes 5 and 6 of the TSG

reports. The accuracy of these data has not been verified by

the National Bureau of Standards.

Because the time dimension was expected to be signifi- cant in computing fire-loss impacts, the model was struc- tured to allow specification of a study period over which

fire-loss impacts would be assessed. For the case examples, a study period of 10 years was specified to match the period over which it was believed base-line changes could

be projected.

A ten-year study period was also used in the case examples to assess health impacts. At the time cigarettes are

modified, all smokers who would be expected to incur future health effects from a change in smoking within the 10-year

study period, are accorded a one-time change in smoking,

with health consequences assessed over their remaining

lives. Consumer impacts, cigarette industry impacts, tobacco

farming impacts, tax impacts, and employment impacts are

all reported only for the first year they are estimated to occur. The extent to which they recur depends on alternative opportunities and the mobility of resources in the economy.

Another question which arises in performing the study is what to assume regarding the timing of implementation and

the extent of the changeover. Two alternative implementation

times are assumed in the study: (1) immediate implementation, and (2) a four-year delay. In either case, it is assumed

that both before and after the modification, cigarettes can be

described by a single, homogeneous design.

Conventional practices of benefit-cost analyses are

followed, whereby future amounts are adjusted to their time- equivalent present value amounts; i.e., as though all future amounts occurred immediately as a lump-sum amount. This

is necessary for a valid economic comparison of amounts

which occur at different times.

Period of Time Covered and Discounting: A question

that arises in performing an impact study is the period of time to be covered. If measurable impacts are expected to occur as one-time events, they can be stated as lump-sum

amounts. If they are expected to recur in approximately

uniform amounts annually, they can be measured for one

year and stated as annually recurring amounts. But if impacts vary significantly over time, the time dimension over which impacts are assessed becomes important.

Modifying cigarettes for fire safety entails impacts which were expected to have a significant time dimension and one

that likely varies by type of impact. For example, the size of the smoking-related fire problem was expected to change

over time even without a modification in cigarettes because

of changes in smoking habits, changes in the prevalence of ignitable materials and changes in the level of fire protection.

A changing baseline of fire losses means that the fire-related impacts from modifying cigarettes would be expected to change each year. In contrast, the effect of a cigarette

modification on a given smoker's consumption rate or deci- sion to start or stop smoking was expected to be a one-time

event, not a repeating one, although the consequences of the behavior change would accrue over his or her remaining

lifetime

2h Cigarette Modifications

2.1 Five Hypothetical Cigarette

Modifications

At the direction of the TSG, five hypothetical cigarette modifi- cations are used in the study. They are used to facilitate model development, to allow identification of types of potential impacts, and to test the order of magnitude of impacts

which may result from representative modifications. Hypothetical modifications are used because the results of laboratory experiment upon which more definitive prototype

cigarette designs might have been based were not available. The five selected are identified by type and briefly described

in table 2.1. Note that inclusion of these particular modifications in the study does not indicate that they are necessarily the best ways of improving cigarette fire safety. Other approaches

may be superior. But this selection — (1) a reduction in cigarette circumference to increase burn rate, (2) an increase in the percentage of expanded tobacco to decrease the avail- able fuel, (3) an additive to the blend to cause self- extinguishment, (4) an increase in the weight of the paper

(with porosity held constant), and (5) a decrease in the

porosity of the paper (with weight held constant) to increase

the insulating function of the paper-covers each of the

major physical components of cigarettes. To treat these

modifications requires development of a versatile model

capable of treating a modification of any major cigarette

component. It is expected that other cigarette modifications

that may be proposed at a later time also can be evaluated

with the economic impact model, if specific cost data are provided in the required format.

2.2 The Baseline Cigarette

To provide a standard or baseline against which the modified cigarettes can be compared, a "prevalent pre- modification cigarette" is defined. This prevalent cigarette is assumed to have a tobacco column blended of about 35

percent flue-cured, 32 percent burley, 13 percent Maryland

and oriental, and 20 percent reconstituted tobacco, plus

flavorings. Its total column length, including filter, is about 85

mm long, and it is about 25 mm in circumference. Its paper

is a single, smooth layer, made from flax straw, weighing

about 24 g/m2

, with a porosity of about 35 Coresta units, about 65 mm long and 27.5 mm wide (which exceeds the

cigarette circumference to allow overlap).

It is assumed that each modification is to this prevalent

cigarette. It is further assumed that all domestic cigarettes are modified uniformly, either immediately or after a four-year

delay.

Table 2.1 Five Cigarette Modifications

Selected For Impact Assessment

Type of Modification Specification

1. Change in Circumference

Decrease from 25 mm to 21 mm

2. Change in Tobacco

Blend

Increase Expanded from

25% to 50% of Blend

3. Self-Extinguishing

Chemical Additive to Blend

Add 150 g of Chemical

to Blend per 1000

Cigarettes

4. Change in Paper Increase Paper Weight

from 24 g/m2 to 32 g/m2

5. Change in Paper Decrease Paper Porosity

from 35 to 10 Coresta

Units

3a Potential Impacts

This section investigates the impacts which might be antici- pated from reducing cigarette ignition propensity, how those

impacts might be valued, and special issues and uncertainties which arise in attempting measurement. In identifying

types of impact, the perspective taken is that of the U.S. Congress with concern for all persons, groups, and sectors

affected.

3.1 Sources of Impact

As a starting point, let us consider why changing the ignition

propensity of cigarettes may have economic impacts.

Knowing why impacts occur will be helpful in determining

what impacts are likely to result from given cigarette design

modifications. The most obvious and direct source of impact is changing

the probability that a cigarette will cause an unwanted fire. The expected results are fewer deaths and injuries from

smoking-related fires, and less property damage.

Another source of impact is changing the kinds or quantities of raw materials, labor, and production processes

required to produce cigarettes. Even if there were to be no change in overall production costs, suppliers of raw

materials, labor, and machinery would experience direct impacts as more is demanded of some factors of production

and less of others. But changing the mix and quantities of inputs generally

will change production costs, which means a change in the supply of cigarettes, i.e., a change in the various quantities

of cigarettes which sellers are willing and able to make avail- able for sale at possible alternative prices during a given

period of time, all other things remaining the same. A

change in supply will affect the quantity of cigarettes sold and the wholesale and retail prices at which they are sold. A

change in cigarette price and sales can be expected to

affect the revenue of cigarette manufacturers, of tobacco

producers, and of other suppliers of raw materials, labor, and equipment. In turn, consumers, businesses and govern- ment will likely be affected. And, in addition, secondary

impacts on fire losses due to price-induced changes in cigarette consumption can be anticipated.

A further source of impact may be changes in cigarette

attributes other than ignition propensity and price, such as

taste, appearance, tar, nicotine, and carbon monoxide

content, and tendency to stay lit. Changes in these attributes may change the demand of consumers for cigarettes, i.e., the various quantities of cigarettes which buyers are willing

and able to purchase at possible alternative prices during a

given period of time, all other things remaining the same. A

change in demand will affect cigarette sales and prices,

thereby affecting cigarette manufacturers, tobacco

producers, consumers, business, government, suppliers of raw materials, labor, and machinery, and potential victims of

fire loss. Changes in chemical potency of cigarettes may

directly affect consumer health.

In brief, impacts may stem from any or all of the following

four sources:

(1) Change in ignition propensity;

(2) Change in the mix or quantities of raw materials, labor, and/or production processes for manufacturing

cigarettes;

(3) Change in the costs of producing cigarettes; and

(4) Change in the taste, potency, and other smoking

attributes of cigarettes.

A first step in estimating the impacts of a given cigarette

modification is to ask which of these sources of change are

likely to occur.

3.2 Types of Impact

A second step in assessing impact is to decide the level of coverage. This study focuses on the fire loss impacts, the primary or "first-order" effects. It also includes secondary or "second-order" effects which may be important depending

on how the modification is accomplished. Impacts are grouped into the following categories:

A. First-Order Impacts
(1) Lives/life-years saved due to fewer cigarette fires;

(2) Cigarette-fire injuries avoided; and

(3) Property loss reductions.

B. Second-Order Impacts

(1) Cigarette industry impacts;

(2) Tobacco farming impacts;

(3) Health impacts;

(4) Consumers' surplus impacts;

(5) Employment impacts;

(6) Excise tax revenue impacts; and

(7) Other impacts.

Each of these potential types of impacts is discussed briefly below. The discussions address the appropriate units of valu- ation and key issues for measurement. Potential impacts not included in the model are noted.

3.2.1 First-Order Impacts: Reductions in Cigarette-Fire Losses

Reductions in fire losses from smoking-related fires are the most direct impacts of reducing cigarette ignition propensity.

If cigarettes were to be made completely fire safe, each year about 1500 fewer people would die in fires, roughly 7000

fewer would be injured in fires, and nearly half a billion dollars in property losses would be avoided. Some downward trend in cigarette fires is projected over the coming

years due to reductions in cigarette consumption, increases

in the prevalence of fire-resistant bedding and upholstery,

and improvements in fire mitigation technologies. Over the

next 10 years, for example, deaths and injuries from cigarette

fires are projected to drop by roughly 20 to 25 percent and

property loss by about 10 percent. Despite this downward

trend, the savings potential from fire-safe cigarettes remains

relatively strong through at least the mid-1990s. 4 The size of direct fire loss impacts depends not only on

the magnitude of the cigarette-fire problem, but on achiev- able reductions in ignition propensity. As was indicated

earlier, no distinction is made among the hypothetical modifi- cations in their estimated first-order impacts, due to lack of data.

In addition to the direct fire loss impacts from a modification in cigarette design, second-order fire-loss impacts may

4John R. Hall, Jr., Final Report: Expected Changes in Fire Damages

from Reducing Cigarette Ignition Propensity, report submitted to the Technical Study Group on Cigarette Fire Safety, August 1986, Table

1.

occur. The secondary impacts stem from changes in cigarette consumption brought about by changes either in cigarette production costs (supply) or in other cigarette attributes (demand). While the direct fire-loss impacts are expected to be positive for all technically feasible design modifications,

the secondary fire-loss impacts may be either positive or negative depending on how cigarette production costs and

demand change.

The generally accepted unit for valuing property loss is dollars and that is the unit of value applied in this study.

Property loss impacts are measured by applying designated

percentage reductions to the projected baseline of smokingreiated property losses, which are reported in dollars. While there is little controversy over assigning a dollar unit of value to property loss, there is controversy over assigning a dollar unit of value to avoidance of death and injury. This

does not mean that dollar valuation of life and limb is not

often done- it is, generally according to one of the following three methods:

(1) Willingness-to-pay method;

(2) Earnings method; and

(3) Social valuation method. 5

Dollar valuation of life and limb is done because it is useful

for making decisions about programs that affect life safety,

such as disease control and highway safety- programs

which entail significant and varying amounts of capital

expenditure and which have different effects on life safety.

Even if dollar valuation is not made explicit, dollar values are

implicitly placed on lives each time the government or private sector makes a capital investment decision which

affects the probability of death and injury. At the same time, a number of arguments can be advanced against assigning

dollar values to life and limb, and the approach is nearly

always likely to cause difficulty as decision makers disagree

among themselves as to the appropriateness of the dollar amount. At the request of the TSG, impacts on life and limb are not valued in dollars in this study. They are measured in terms of numbers of lives saved, with an alternative estimate

provided of the equivalent life-years saved (since no lives are permanently saved), and numbers of injuries avoided.

The appropriate valuation of injury is particularly difficult, because fire injuries range from very minor to a degree of seriousness that would probably be perceived by many as worse than death. Yet they are reported simply as number of injuries in the fire statistics. In this study, direct injury impacts

are measured by applying the assumed percentage reduction in ignition propensity to the total number of smokingrelated injuries, without any breakdown by seriousness of the

injury. Indirect costs of fire losses, such as funeral bills, medical

expenses associated with fire injuries, expenses due to loss

of housing and clothing, and fire department costs and

5 For a discussion of these methods of life valuation, see Thompson,

Benefit-Cost Analysis, pp. 184-220.
other costs of fire loss mitigation fall outside the scope of study.

3.2.2 Second-Order Impacts

Cigarette Industry Impacts

A change in cigarette design may affect manufacturers of cigarettes by changing their manufacturing costs, product

price, sales volume, and revenue. These effects result from

changes in input requirements, causing a change in supply;

they can also result from shifts in the demand for the

cigarettes.

A reduction in ignition propensity may also change

manufacturers' costs of litigation and reduce adverse

publicity. The product liability theory increasingly applied to sustain law suits against cigarette manufacturers relates to "defects in design" and assumes that the manufacturer could

have eliminated foreseeable dangers from the product. 6 By

producing fire-safe cigarettes, manufacturers may reduce

potential costs of litigation and adverse publicity arising from

cigarette-caused fires.

If a cigarette design modification requires an increase in factors of production, unit costs rise, the price at which

manufacturers are willing to supply cigarettes rises, and

sales fall, other factors remaining the same. The resulting

change in revenue depends on the price elasticity of demand for cigarettes, a measure of the responsiveness of the change in the quantity of cigarettes purchased to a change in cigarette price. 7 Given the relatively inelastic demand for cigarettes -as indicated by previous studies8 -

manufacturers' revenue can be expected to increase with a decrease in supply, and decrease with an increase in supply, because the change in price will not be fully compensated by a change in sales.

If a design modification changes those attributes of cigarettes associated with smoking satisfaction, consumer demand for the product also can be expected to change. A

cigarette perceived by consumers as inferior would be

expected to generate less demand and one perceived as

superior, more demand. Less demand tends to cause price

and cigarette sales to fall, and, i-n turn, to reduce manufacturers' revenue. An increase in demand tends to have the opposite effect. While it appears fairly certain that an inferior tasting cigarette or one with obnoxious handling characteristics would elicit reduced demand, and vice-versa, it is not easy to say by how much. There is little publicly avail- able information which would enable estimation of consumer

response to the hypothetical modifications. 9 Another factor which complicates the estimation of demand-shift impacts on the cigarette industry is uncertainty over the response in consumer demand to cigarette modifi- cations entailing changed levels of nicotine. As observed by

Leu and Schaub,

Cigarette smoking is associated with considerable physiological and social dependency. . . .The tenacity of smoking

patterns is explained by influences of the social environment,

. . .by physiological processes, regulating the freguency of smoking (and possible other intake parameters) within characteristic limits to maintain a certain nicotine level . . ., or both. . . 1 °

The social dependency factor is taken into account in the economic impact model by the use of empirically estimated

price elasticity of demand parameters. The portion of the

physiological dependency factor which is satisfied by the

frequency of smoking (as distinct from changes in inhalation)

is taken into account in the economic impact model by

allowing shifts in the demand for cigarettes. But how much

to shift demand for a given change in nicotine is highly

questionable. It may be that a large part of the compensation occurs through changes in the manner cigarettes are smoked, such as depth and length of inhalation, rather than

in purchases.

The impacts of design modifications on the cigarette

industry are measured as changes in millions of cigarettes sold and millions of dollars of revenue. These impacts are reported for one year only, the first year they are assumed to occur. Although the change in annual revenue in the cigarette industry may recur, it would be expected that in the long run unemployed resources will be deployed to other

uses. To the extent that manufacturing fire-safe cigarettes were to reduce future costs of litigation and adverse publicity, it would give rise to positive cigarette industry impacts. These

impacts are not included in the quantitative impact assess- ments of chapter 5.

Tobacco Farming Impacts

Modification of cigarettes can also be expected to affect tobacco farming, because the demand for tobacco is derived from cigarette sales. If a design modification causes

a shift in the supply or demand for cigarettes, the derived

demand for tobacco also can be expected to change. If a

shift in cigarette supply results from a change in non- tobacco inputs only, the derived change in tobacco demand

will reflect a change only in the quantity of cigarettes sold; but if the shift in supply results from a change in tobacco

^Donald W. Garner, "Product Liability In Cigarette-caused Fires," New

York State Journal of Medicine (July 1985), p. 322.

7 Algebraically, price elasticity is defined as the ratio of the percentage

change in the quantity demanded to the percentage change in the price charged.

8 Eugene M. Lewit and Douglas Coate, "The Potential for Using Excise Taxes to Reduce Smoking, " Journal of Health Economics, no. 1 (1982), pp. 121-145.

9 Gary T. Ford, John P. Brown, and John E Calfee, "The Costs and

Benefits to Smokers of Reduced Flammability Cigarettes, " Report No.

6, Technical Study Group.

10 Robert E. Leu and Thomas Schaub, "Economic Aspects of Smoking,"

Effective Health Care, vol. 2, no. 3 (1984).
inputs, the derived change in tobacco demand will reflect not only a change in the quantity of cigarettes sold, but also

in the tobacco content of each cigarette.

Impacts on tobacco farming are distributed among the

following four different groups:

(1) Growers— those who manage the farming activity;

(2) Landowners -those who own the land on which the tobacco is grown;

(3) Quota holders— those who own the right to grow

tobacco; and

(4) Farm laborers.

The impact of cigarette design modifications on tobacco

farming is influenced significantly by government agricultural

policy. Shifts in demand for tobacco can be responded to by

a range of changes in quota allotments, causing varying

combinations of adjustment in tobacco sales and price. This

policy affects the distribution of revenue impacts among the above groups. Tobacco farming impacts are likely to be highly concentrated in several states, particularly North Carolina and

Kentucky, the major tobacco-producing states. The impact

analyses of section 5, however, do not show impacts at the

regional level. Impacts on sales of tobacco are measured in millions of pounds of tobacco sold; impacts on tobacco revenue, in millions of dollars. Impacts are estimated for one year only, the first year they are assumed to occur. Changes in annual revenue from tobacco farming may persist as tobacco

farmers are likely to find it difficult in the short-run to shift to other crops of equal or higher value.

Health Impacts

In addition to the impacts on life and limb associated with

fire losses, there are potential health impacts associated with modification-induced changes in cigarette consumption and

the chemical composition of cigarettes. At a press confer- ence releasing the 1986 Surgeon General's Report of The

Health Consequences of Involuntary Smoking, Surgeon

General C Everett Koop, M.D., stated: 11

Previous reports have documented the tremendous health burden caused by tobacco use, particularly regular cigarette

use. In the 1982 report on cancer we concluded that cigarette smoking was the single largest cause of excess cancer

mortality in the United States; in 1983 our report on cardi- ovascular disease identified cigarette smoking as the most

important modifiable risk factor for coronary heart disease;

""Remarks by C. Everett Koop, M.D., Surgeon General, at Press Conference Rleasing the 1986 Surgeon General's Report on The

Health Consequences of Involuntary Smoking," Press Release, U.S. Dept. of Health and Human Services, (December 1 6, 1 986), p. 1

.

and in 1984 cigarette smoking was found to be the major cause of chronic obstructive lung disease in the United

States population.

The scientific data which establish these increased risks

for disease among smokers is now overwhelming, totaling more than 50,000 studies from dozens of cultures. It is esti- mated that smoking is responsible for well over 300,000

deaths annually in the United States, representing approximately 15 percent of all deaths.

By relating disease incidence to smoking levels, and

estimating the economic consequence of disease, the economic impacts of changes in smoking levels can be esti- mated. Changes in cigarette consumption associated with

different design modifications can thereby be translated into estimated health impacts.

Health impacts are estimated in the study as changes in incidence-based lifetime medical costs measured in expected value dollars, and as changes in life expectancies

(i.e., life years saved or lost) attributable to a modification of cigarette design. The impact measures do not include

changes in the dollar value of productive output foregone or changes in the quality of life due to modification-induced

changes in morbidity, disability, and premature mortality.

Health impacts from changes in the chemical composition

of cigarettes can be estimated by the economic impact

model if the necessary data are provided. However, the appropriate values to assign to the parameters which define

the relationship between the tar, nicotine, and CO content, and smoking-related medical costs and life expectancies for the five modifications are unknown.

Health issues not addressed by the economic impact

model and not taken into account in the health data used in the case analyses include: (1) omission of passive smoking

effects; and (2) possible understatement of health costs to women smokers due to recent changes in inhalation patterns and increased use of oral contraceptives.

Consumers' Surplus Impacts

"Consumers' surplus" is used in benefit-cost analysis of public

programs as a measure of the net change in welfare caused

by a project or policy— an increase in consumers' surplus

indicating an improvement in social welfare, and a decrease, a detriment. Consumers' surplus is defined as the amount a

user would be willing to pay for a good, a service, or a right less its cost to him or her. Consumers' surplus may be

increased either by increasing consumers' Willingness to pay

(i.e., increasing demand) or by decreasing production cost

(i.e., increasing supply), since either increases the excess of willingness to pay over cost. Hence, a policy which reduces

the cost of cigarettes to consumers, without adversely

affecting cigarettes, or which increases consumer demand

for cigarettes, is considered to increase consumers' surplus.

The economic impact model is capable of measuring the change in consumers' surplus resulting from both changes

in cost and changes in demand.

Because the consumers' surplus concept is measured by

the willingness to pay based on the observed market price

actually paid, it fails to capture certain nonmarket payments

10
that consumers may make implicitly, whether or not they are aware of them. These include such nonmarket costs as

health and fire risks. Implicit in the consumers' surplus concept is the assumption that tastes and preferences of consumers are revealed

by their consumption decisions, and that consumption

provides satisfaction to the consumer. The application of the consumers' surplus measure assumes free choice and the absence of third party or external effects. To the extent that physiological and social dependencies prevent the smoker

from making free choices about consumption, there is a market failure, and consumers' surplus becomes a questionable indicator of consumer satisfaction. Similarly, if passive

smokers who wish not to inhale environmental smoke suffer a decrease in consumer satisfaction as active smokers

experience a gain, and vice versa, it becomes a questionable measure.

Employment Impacts

Employment impacts will be induced directly if the input

requirements for producing cigarettes change, thereby

changing the mix and numbers of jobs. Indirect employment

impacts may result if a design modification triggers a change in cigarette or tobacco sales. Employment impacts are likely to be concentrated in the major tobacco-producing and cigarette-manufacturing

regions. But the impact assessment in section 5 does not estimate impacts by region. To the extent that displaced workers can move into other jobs at equal wages, employment losses will be offset. But if wages are lower in alternative employment opportunities or if displaced workers cannot find alternative employment,

losses in worker income will persist.

Employment impacts estimated by the economic impact

model include the direct impacts resulting from changes in the cigarette production process as well as indirect impacts

resulting from changes in the level of tobacco and cigarette

production. The employment impacts are measured in full- time equivalent jobs.

Cigarette Excise Tax Revenue Impacts

Included in the wholesale price of cigarettes to be sold in the domestic market is the federal excise tax of 8 dollars per thousand. In addition, included in the retail price of cigarettes are state and local taxes which vary widely but on

a sales-weighted average basis amount to just under 17 cents per package of 20 cigarettes, approximately equal to the revenue collected under the federal tax. Because these

excise taxes are based on the quantity of cigarettes sold, the revenue generated by them will be affected directly in proportion to changes in domestic cigarette sales. These tax revenue impacts are included in the model and are to be

interpreted as changes in transfer payments between

different interest groups and not as impacts on resource

costs. Federal excise tax is imposed on the basis of the

quantity of cigarettes sold. Tax revenue, therefore, can be

expected to rise if a design modification results in higher

sales of cigarettes, and to fall with lower sales.

Other Impacts

Potential impacts not included in the model include the

following:

(1) Other industry impacts, such as impacts on the paper,

fertilizer, container, farm equipment, cigarette manufacturing equipment, chemical, transportation, and advertising and promotion industries;

(2) Multiplier impacts as each effect causes, in turn, still smaller effects in a ripple throughout the economy;

(3) Global impacts, such as public satisfaction that innocent

people are suffering fewer losses from smoking-related

fires for which they are not responsible;

(4) Regional impacts, as some of the major impacts, namely

tobacco farming, cigarette manufacturing, and employment, will tend to be concentrated in several states.

11

4b The Economic Impact Model

The purpose of the economic impact model is to permit

quantitative estimation of each of the impacts discussed in section 3.0. Because most cigarette design modifications are

likely to lead to a change in manufacturing costs, a method

of tracing such cost changes through to all of the impact

categories is needed. This need led to the development of a supply and demand equilibrium model of the leaf tobacco

and cigarette industries. This model lies at the core of the impact model because the estimates it provides of the price

and quantity changes in the tobacco and cigarette markets

form an essential component of all of the impact estimates. For example, the results of the supply and demand model

permit immediate estimation of such impacts as the changes

in tobacco growing revenue, cigarette company revenue, and federal excise tax revenue. In addition, the estimate

given by the model of the change in the quantity of cigarettes sold in the domestic market is the key value in determining all of the second-order fire loss, health, and

employment impacts. The first subsection describes the supply and demand equilibrium model, and the last three subsections discuss the economic impact categories that require additional modeling and that derive from both the

direct (that is, independent of a change in cigarette

consumption) effects of the product modifications and the

indirect (that is, resulting from a change in cigarettes

consumption) effects. Thus, there are a total of four models

that are linked together to comprise the economic impact

model:

(1) Supply and demand equilibrium model;

(2) Fire loss impact model;

(3) Health impact model; and

(4) Employment impact model.

4.1 The Supply and Demand Equilibrium

Model

This subsection discusses the structure of the supply and

demand equilibrium model, the data requirements of the model, and those economic impact categories that are addressed directly by the model.

4.1.1 Model Structure: Structural Equations,

Endogenous and Exogenous Variables, Parameters, and

Solution Equations

The two major industries affected by modifications to the design of cigarettes are the leaf tobacco industry and the

cigarette manufacturing industry. The supply and demand

equilibrium model is structured to address both of these

industries with explicit equations representing the supply of and demand for tobacco and cigarettes in both the domestic and export markets. The model is called an

equilibrium model because it is designed to compare the market equilibrium values before and after the proposed

cigarette modifications. The model offers such comparisons

readily because all of the variables are expressed as proportional changes and the solution of the model expresses

each of the price and quantity variables as a function of the changes in tobacco costs, paper costs, and other manufacturing costs brought about by the cigarette modifications. The supply and demand model consists of the nine equations presented in Table 4.1. The definitions of the endogenous variables are presented in Table 4.2. The

parameters used in the structural equations to compute the immediate impacts of the supply and demand model are explained in Table 4.3. The exogenous variables are defined

in Table 4.4. The operator, E, before a variable indicates that the variable is in proportional change or log differential form

(i.e., EX=dX//X). Thus, EP,d means the log differential of the

price of domestic tobacco and when multiplied by 100, can be interpreted as the percentage change in the price of domestic tobacco.

Eq (1) is a standard demand equation which expresses

the proportional change in the number of cigarettes

demanded in the domestic market as a function of the

proportional change in the price of domestic cigarettes and

of the exogenous change in the demand, EDCCi, possibly due

to taste changes resulting from the modifications. Variables

such as the price of cigarette substitutes and consumer

incomes are not explicitly included in the model because

they are assumed to be unaffected by the modifications. The

13
coefficient of EPccj the wholesale price of cigarettes, is the

elasticity of demand with respect to the wholesale price and

is interpreted as the percentage change in quantity

demanded per percentage change in price. For example, if the elasticity were 0.3, a ten percent increase in the domestic wholesale price would mean a 3 percent decrease

in the quantity demanded. Eq (2) is the same kind of demand equation for the export market, and Eq (3) represents the total of the two markets and is the weighted

average of the changes in each market, weighted by their quantity shares. Eq (4) represents the supply of cigarettes in the domestic

market. The domestic supply is based on a cost function

that relates changes in the price of cigarettes to changes in production costs of each component of the manufacturing

process. Thus, the domestic price is a function of the price

of tobacco and of the quantity of tobacco per cigarette as

well as of the paper and other costs. Each cost component

is weighted by its respective cost share. This specification of domestic supply implies that changes in the unit cost of manufacturing will eventually be fully reflected in the real price of cigarettes, other factors being equal. The use of this specification is appropriate for industries with little evidence

of monopoly behavior, such as the cigarette industry. 12 Note

that the model predicts an expected change in the real

(inflation free) price, that the adjustment may be gradual,

and that the change is measured in reference to what would

have happened in the absence of the cost change.

Eq (5) represents the supply of cigarettes in the export

Table 4.1 Structural Equations of

the Supply and Demand Model in

Proportional Change Form

1. EQcd " -ncjE p cd + "cd

2. EQce - -n c<! EPC(, + ELJct!

,3. EQC

- i c<i EQcd + (1 - 8 cd )EQce

4. EPcd " "tdEPtdFtd + K,

where Ftd - 1 + EU td , and EC - oc dEU td + aKEK + oMEM

5. EPce

- Y (EPcd - 8EC - et^EPtjEU,.,)). where r - 1/(1 - aT )

6. E9td -"tdEp td + EQcftd + E^td

7. EQte " "Itemed

8. EQ t " 8tdE0td + (1 ~ Bcd)EQte

9. EQ t - cEP td

market. The export price is not subject to the federal excise

tax so that the proportional changes have to be weighted

accordingly. In addition, the export price differs from the

domestic price by the extent to which the modification costs are NOT incurred for exported cigarettes. Because of this parameter, the model is completely flexible with respect to whether and to what extent cigarettes sold in the export

market are assumed to be subject to the design modifications. Eq (6) represents the derived demand function for domestically grown tobacco used by U.S. manufactured cigarettes.

The quantity demanded depends on its price, the total number of cigarettes produced, and the content of tobacco

per cigarette. In Eq (7) the quantity of domestic tobacco

demanded in the export market is a function solely of the

price. Eq (8) represents the total amount of tobacco

demanded in the two markets and is the weighted average

of the changes in each market, weighted by their quantity shares. The supply of domestic tobacco is given in Eq (9) and is a function of the price and of the parameter

representing the supply elasticity of tobacco which is deter- mined primarily by federal agricultural policy.

This supply and demand model was adapted from one

originally developed to assess the impacts of changes in federal cigarette excise tax policy. 13 To construct a model

that permits analysis of the effects of cigarette design modifi- cations, five of the nine equations of the tax policy model

had to be respecified. Eqs (1) and (2) were modified to allow

for domestic and foreign consumer responses to the design

modifications. Eq (4) had to be restructured to permit analysis of the changes in tobacco content, paper costs, and

other manufacturing costs caused by the modifications. Eq

Table 4.2 Definitions of Endogenous

Variables Used in the Supply and

Demand Model

Symbol Definition Units

Qcd Quantity of U.S. cigarettes sold In domestic market '/year

Qce Quantity of U.S. cigarettes sold in export market #/year

Qc Total quantity of U.S. cigarettes produced #/year

Q C d Quantity of U.S. tobacco sold In domestic market lbs/year

Qte Quantity of U.S. tobacco sold In export market lbs/year

Qc Total quantity of U.S. tobacco produced lbs/year

Pcd Price of cigarettes sold In domestic market $/10O0

p ce Price of cigarettes sold In export market S/1000

Ptd Price of U.S. tobacco sold in domestic market $/lb

^Daniel A. Sumner, "Measurement of Monoply Behavior: An Application

to the Cigarette Industry, " Journal of Political Economy, vol. 89, no. 5 (October 1981), pp. 1010-1019.

TMDaniel A. Sumner and Michael K. Wohlgenant, "Effects of an Increase

in the Federal Excise Tax on Cigarettes," American Journal of Agricultural Economics, Vol. 67, No. 2 (May 1985), pp. 235-242.

14
(5) was respecified because federal tax policy is not being

changed by the cigarette modifications and to give the model flexibility to accommodate alternative assumptions

about the extent to which exported cigarettes share in the

costs of the design modifications. Some exported cigarettes

may be modified because they share the same production

facilities. Eq (6) was restructured to account for changes in the domestic tobacco content of cigarettes resulting from the

design modifications. The remaining four equations required no changes.

The system of nine equations presented in table 4.1 can be solved using the method of substitution. The objective is to express at least one of the endogenous variables in explicit form independent of the other endogenous variables. Thus, this variable would be a function exclusively of the

known parameters and the known exogenous variables. This

function permits the direct computation of the equilibrium

solution value of the variable, which in turn can be used to compute the solution values of the remaining endogenous

variables. The key endogenous variable in this system of equations turns out to be EPtd the domestic wholesale price

of tobacco. The explicit form solution for this variable is derived in detail in appendix A. The solution equations for the supply and demand model

are presented in Table 4.5. The equations are numbered in the order in which they are to be used for computing the

solutions to each of the endogenous variables. Once the first equation has been used to compute the proportional

change in the domestic price of tobacco, the answer is

Table 4.3 Definitions of Parameters

Used in the Structural Equations and in

the Computation of the Immediate

Impacts of the Supply and Demand

Model

Symbol Definition

T) C(t Price elasticity of domestic demand for cigarettes

n ce Price elasticity of export demand for cigarettes

n C4 Derived demand elasticity for domestic tobacco

n ce Price elasticity of export demand for tobacco

a t(j Cost share of domestic tobacco in cigarettes

o,£ Cost share of paper in cigarettes

aj Cost share of federal excise tax in cigarettes

o.^ Cost share of other manufacturing costs in cigarettes

ol Cost share 'of lease rates in tobacco production

3 c <j Quantity share of U.S. cigarettes in domestic market

3 cd Quantity share of U.S. tobacco in U.S. cigarettes

u Elasticity of marginal cost of tobacco

c Agricultural policy response elasticity for tobacco

8 Share of modification coats not Included In exported cigarettes

substituted into the second equation to obtain the price

change for domestic cigarettes. Then these results can be

used to solve the third equation to get the change in the

price of exported cigarettes. In a similar fashion, the remainder of the endogenous variables can be solved.

4.1.2 Data Requirements for the Supply and Demand

Model

To use the solution equations to obtain quantitative economic

impact estimates, considerable data requirements must be

satisfied. The first requirement is for specific values for the parameters listed in table 4.3. There are six elasticities to be

established. The elasticity of domestic demand for cigarettes

has been studied extensively. Warner summarizes a number

of recent estimates of this elasticity with respect to the retail price of cigarettes, and they range from 0.4 to 1.3. 14 Such a

retail elasticity can be converted to the wholesale equivalent

needed by the model by multiplying by the ratio of wholesale to retail prices. The other five elasticities are discussed

in some detail by Sumner and Wohlgenant. The five cost share parameters can be established by dividing relevant cost data available from the US Department of Agriculture

(USDA) by the wholesale price of cigarettes. The two quantity shares for cigarettes and tobacco are available from the

Table 4.4 Definitions of Exogenous

Variables Used in the Supply and

Demand Model

Symbol Definition Appearing in Structural

Equatton(s)

EDCd Proportional Change In Domestic Demand for Cigarettes

1

"ce Proportional Change in Export Demand for Cigarettes

2

EUtd Proportional Change In Unit Domestic Tobacco Content per Cigarette

*. 5, 6

EK Proportional Change in Paper Cost per Cigarette

4

EM Proportional Change In all Other Cigarette Manufacturing Costs

*. 5

14 Kenneth E. Warner, "Consumption Impacts of a Change in the Federal

Excise Tax." The Cigarette Excise Tax: April 17, 1985. Smoking

Behavior and Policy Conference Series (Cambridge. MA: Harvard

University, Institute for the Study of Smoking Behaviour and Policy. 1985), pp. 88-105.

15
Table 4.5 Equations Used to Compute

the Solution Values for the Endogenous

Variables, in the Order of Computeration

1. Price of Domestic Tobacco:

Eftd " Ftd<*cd(Bcd<"cd " "cdEO + (I - B cd HEDce - n ce rd " »)EC)

+ EUtd ]/[e + *|,

where k - acd^cdftdlScdlcdFtd + U " B cd )n c eY( E td - 6EU td )l + 8 td n cd

+ (l - S td )nce

2. Price of Domestic Cigarettes: EPcd - a cd EP td F td + EC

3. Price of Exported Cigarettes: EPce - l(EPcd - 8EC - ea tdEP td EU cd )

4. Quantity of Domestic Cigarettes: EQcd - - n cd EPcd + EDcd

5. Quantity of Exported Cigarettes: EQce - - n ce Epce + EDce

6. Quantity of Total Cigarettes: EQC - 8 cdEQcd + (1 - 8 cd )EQce

7. Quantity of Domestic Tobacco: EQ td - - ntd Eptd + EQc F"td + ^td

8. Quantity of Exported Tobacco: EQ te - - nteEp td

9. Quantity of Total U.S. Tobacco: EQt - 8 td EQ td + (1 - fl t d) EQte " eEt> td

USDA report, Tobacco: Outlook and Situation Report. The

share of modification costs not included in exported

cigarettes is a policy parameter whose value can be

selected between zero and one according to the preferred

assumption.

The next set of data requirements focuses on establishing

the proportional changes in each of the exogenous variables

listed in table 4.4. If a modification is expected to alter signifi- cantly the taste of cigarettes, then the first two exogenous

variables can be used to reflect the resulting shifts in demand in the domestic and export markets. The last three exogenous variables address possible changes in the costs

of producing cigarettes due to the design modifications. The

data needed to specify these changes must be in proportional change form and should be based on a study of the

cost consequences of the modification for each of the three cost components. For example, if the modification calls for increased use of tobacco expansion so that 12 percent less tobacco would be used per cigarette, the value to be used

in the model for EU,d should be -0.12. Similarly, if the

modification calls for an increase in the weight of paper

leading to a 25 percent increase in the cost of paper, then

the value of EK in the model should be 0.25. Once the values for the parameters are fixed and the values for the proportional change exogenous variables are chosen, solution values for each of the endogenous vari- ables can be obtained directly from the solution equations in table 4.5. These solution values are stated in proportional

change form and represent impacts of the design modifications in terms of the changes in prices and quantities in the domestic and export cigarette and tobacco markets. The

solution values also provide the means to estimate other impacts of the modifications. To determine the actual changes in the prices and quantities (in addition to the proportional or percentage changes),

data are needed on the initial values for each of the vari- ables, such as the total number of cigarettes and pounds of tobacco produced, and the current prices of cigarettes and

tobacco. These initial or baseline values for the endogenous

variables are available in the USDA Tobacco: Outlook and

Situation Report.

4.1.3 Immediate Impacts Provided by the Supply and

Demand Model

The immediate impacts addressed by the supply and

demand model are the tobacco farming impacts, the cigarette industry impacts, and the tax and consumer impacts.

These impacts are called immediate because their estimation requires no data besides the three categories needed

by the supply and demand model itself: the values for the parameters, the exogenous change variables, and the initial values for the endogenous variables. The tobacco farming impacts include changes in the price

of tobacco and changes in the quantities of tobacco sold in the domestic and export markets. In addition, the change in tobacco revenue is computed with a breakout for the portion

of revenue going to the owners of the tobacco growing

rights, and the profits (Producers' surplus) going to the tobacco growers themselves.

The cigarette industry impacts include the change in the wholesale cigarette price and the changes in domestic and

export sales. The change in total cigarette revenue from

domestic and export sales net of the federal excise tax is also presented.

The tax and consumer impacts include the change in the revenue from the federal excise tax and the change in consumers' surplus due both to shifts in demand and

changes in price and quantity.

Some of the immediate impacts discussed here are represented by one of the solution equations of the model

already presented in table 4.5. The rest of the immediate

impacts are computed using the equations given in table

4.6.

4.2 Fire Loss Impacts

To enable the economic impact model to estimate fire loss impacts of the cigarette modifications, three tasks are

involved. First, data need to be developed on the annual fire loss rates projected over the study period and on the change in ignition probability expected from the modifications. Second, baseline data projections are needed on

annual cigarette consumption over the study period. Third, a model is needed for computing each of the fire loss impacts

based on these baseline data and on the results of the supply and demand model. Each of these tasks will be

discussed in turn.

16
4.2.1 Fire Loss Data Requirements

Two types of fire loss data are required: (1) baseline fire loss data, and (2) percentage change in smoking-related fires. The necessary baseline fire loss data consist of projections over the study period of the annual incidence of death and

injury and the dollar value of property damage caused by

cigarette ignitions in the United States. These data have to be specified in reference to the annual consumption of cigarettes, so that the estimated fire loss impacts will reflect changes in consumption. Convenient units of measurement

are the number of deaths and injuries per billion cigarettes

and the constant dollar value of property damage per billion cigarettes due to cigarette-related fires. The second type of

fire loss data addresses the expected change in the probability of ignition due to each cigarette design modification. These data have to be stated as proportional changes in the

ignition probability. For example, suppose that a particular

modification were estimated to lower the probability of igni- tion from 80 percent to 20 percent. This would imply a

proportional change of -0.75 (i.e., -.60/80) or a 75 percent

decrease. Of course, if the modification caused changes in behavior, such as increased carelessness, the proportional

change estimate would have to be adjusted.

4.2.2 Projection of Baseline Annual Cigarette

Consumption

The fire loss data have to be integrated with cigarette

Table 4.6 Equations Used to Compute

Immediate Impacts of the Supply and

Demand Model

1. Tobacco Farming Revenue:

Ekt - EQt + EP td + EP td EQ t

2. Tobacco Quota Lease Rate:

EL - (l/o L )(EP td - (1 - <n>EQt ]

3. Tobacco Quota Lease Revenue:

ERL

- EL + EQt + EQt EL

4. Tobacco Producers ' Surplus:

EPSt - uEQc (l + EQt /2)(l - o L)P tdQt

5. Cigarette Company Revenue Net of Excise Taxes:

E"c " 6 cd (EQcd + vEPcd + YEQcd EPcd} + O " Bcd>< EQce + EPce + EQceEPce )

6. Federal Excise Tax Revenue:

ERT

- EQcd

7. Cigarette Consumers' Surplus:

ECSC - 1/2 PcdQcdIEWlcd " Epc<i<l + KJcd)]

consumption projections in order to arrive at an assessment

of fire losses per quantity of cigarettes smoked. This subsection describes the derivation of the cigarette consumption

projections for the years 1986 through 1995 for the resident

U.S. population, ages 16 and over.

In developing the projection model, it was assumed that the consumption trend of the past ten years would continue

into the next ten years. Hence, the cigarette consumption

figures for the years 1976 to 1985 served as the basis for the consumption projections for the years 1986 to 1995. The

method described below was used to estimate the future base-line cigarette consumption:

First, linear regression analysis was used to estimate the parameters for the intercept and the slope of the trend line for the years 1976 to 1985. Second, the estimated

parameters were applied to the years 1986 to 1995 to predict per capita consumption. Third, the per capita figures were multiplied by the projected population figures for 1986

to 1995 to obtain the total projected cigarette consumption

for those years. These figures are listed in table 4.7. In the years after 1981 per capita cigarette consumption

showed a marked decrease, presumably attributable for the most part to the greater than usual number of state excise

tax increases in 1982 and to the rise in the federal excise

tax from 8 cents per pack of cigarettes to 16 cents in January 1983. Tax increases have been a principal component of cigarette price increases, 15 and the responsiveness

of cigarette consumption to prices is well documented else- where in this report. For the specification of the regression equation a trend

variable YEAR and a DUMMY variable are used. The

dummy variable reflects the tax effects. Since the study

period comprises only 10 years (and the small number of observations limits the number of explanatory variables that can be included in the equation), other, more gradual causes of a change in per capita consumption, such as the Surgeon General's reports, anti-smoking publicity or demographic changes, are not specified separately from the trend

variable. Thus, for instance, birth cohort effects are not assigned a separate variable because it is assumed that the

decrease in per capita cigarette consumption caused by

deaths in the age groups of heavy smokers born between

1910 and 1930 would not have an effect significantly above

trend for a study period of only ten years. The scenarios ranged from the assumption of a TEMPORARY change in the intercept or the slope of the trend line to the assumption of a PERMANENT change in the intercept and the slope. The dummy variable was coded

as 1 for the years showing a sharp decline in consumption

and as for the remaining years. The regression equation that resulted in the best fit for the trend line is based on a permanent change both in the inter- cept and the slope of the trend line and produced the

following estimates:

15 Kenneth E. Warner, The Effects of the Anti-Smoking Campaign on

Cigarette Consumption, American Journal of Public Health (July 1977)

vol. 67, no. 7, pp. 646-650.

17
Percapcon = 3731.88 -

31.92(YEAR) + 281.79(DUMMY) - 55.98(YEAR)(DUMMY)

(-3.61) (2.20) (-2.99)

where Percapcon stands for per capita cigarette consumption. The standard error for this estimation was ±36.95 with an R

2 of .70. The t-statistic (in parentheses) was significant, with 6 degrees of freedom, at a 90% confidence interval for the intercept parameter and at a 95% confidence interval for the remaining parameters.

The scenario underlying this equation assumes that over

the next ten years the trend in cigarette consumption will continue to follow the pattern established in 1982. This

implies that in the coming decade per capita cigarette

consumption will further decline if factors contributing to this trend remain the same over the next ten years, factors such

as cigarette pricing, attitudes toward smoking, anti-smoking

laws, and cohort effects. 16 The estimates arrived at by this method and shown in table 4.7 indicate a 27.6 percent decrease in per capita cigarette consumption, i.e. from 3,241.04 (162 packs) in 1985 to 2,343.57 (117.2 packs) in 1995. When the estimated per

capita figures are multiplied by the population projections for the years 1985 to 1995, the results show an estimated

decrease in total cigarette consumption of 21.6 percent, i.e. from 595.14 billion in 1985 to 465.58 billion cigarettes in 1995. Both the per capita and the total consumption reductions are in line with the projections discussed in Tobacco

Situation and U.S. Industrial Outlook 1985, with the former

predicting a per capita decline of 10 to 25 percent by

1990 17 and the latter predicting a possible decrease in total consumption of as much as 2 to 3 percent annually. 18

4.2.3 Fire Loss Impact Model and Linkage to the

Supply and Demand Model

Given the baseline data on fire losses per billion cigarettes

and cigarette consumption, a model needs to be developed

to compute the loss impacts. The fire loss impacts have to take into account both the direct effect of the change in the

probability of ignition expected from the cigarette modification, as well as the indirect effect from a change in consumption caused by cost and price changes. The model

must permit these direct and indirect effects to occur simul- taneously so that their interaction can be correctly measured. The fire loss impact model must also be compatible

with the supply and demand model so that the cigarette

consumption effects from the model can be included.

16 See also Robert H. Miller, "The Domestic Tobacco Market- A look Ahead Through the 1980's," Tobacco Situation, Economics, Statistics, and Cooperatives Service, U.S. Dept. of Agriculture, TS-171 (March

1980, p. 32

17 Miller, "The Domestic Tobacco Market, p. 32.

18

1 985 Industrial Outlook, Section 43, "Tobacco," Bureau of Industrial Economics. U. S. Department of Commerce, pp. 43-45.

The following computational equation for a single fire loss category and a particular cigarette modification satisfies the

above modeling requirements:

Dv (EQcd + El + EQcd El) Qcd ,y DPCy,

where Dy = fire loss reduction in year y for the damage

category and modification,

EQcd = proportional change in domestic cigarette

consumption as computed by the supply and

demand model,

El = proportional change in the ignition probability

due to the modification,

Qcd.y = projected domestic cigarette consumption for year y, and

DPCy = projected fire loss per cigarette in year y for the damage category.

The third term within the parentheses accounts for the inter- active effects between the two proportional changes. The

data that were used with this computational equation in the impact analyses are presented in section 5.

4.3 Health Impact Model

The following adverse health effects have been attributed by

the Surgeon General to cigarette smoking: (1) shortened life, (2) medical costs for the treatment of smoking-related

diseases, (3) complications of pregnancy, (4) productivity

losses, and (5) reduced quality of life. 19

In this section, a model is presented that estimates

changes in the first two of these health effects as generated

by modification-induced changes in cigarette consumption

and cigarette potency. Changes in consumption are caused

by changes in cigarette supply and demand attributed to the

modification. Potency changes are driven by changes in the chemical composition of the modified cigarette.

4.3.1 Data Considerations

Health Data. A constraint in developing any working model

is the nature of available data. For estimating the health costs of smoking, there are two basic approaches: (1) prevalence-based, and (2) incidence-based. The prevalencebased approach assigns health costs to the years in which

they are incurred, whereas the incidence-based approach

assigns the stream of health costs to the year in which the

19 L/.S. Dept of Health and Human Services, Reports of the Surgeon

General, 1982, 1983, 1984, 1986.
illness first appears. As noted in Hartunian et al, zo

Whether the prevalence or the incidence methodology is the more relevant depends on the issues at stake. For deci- sion makers concerned with controlling current medical

costs and absenteeism, the prevalence approach is superior. For decision makers evaluating preventive and ameliorative

programs, the prevalence approach is misleading, inasmuch

as it largely focuses on the current costs of conditions that commenced in the past and that present preventive

programs cannot affect. The annual value of a disease vaccination program — say

20 N.S. Hartunian, C.N. Smart, and M.S. Thompson, "The Incidence and

Economic Costs of Cancer, Motor Vehicle Injuries, Coronary Heart

Disease, and Stroke: A Comparative Analysis, " American Journal of Public Health, vol. 70, no. 12 (December 1980) pp. 1249-1260.

for polio — not benefiting previous disease victims is best

calculated following the incidence approach. In contrast, the

benefits of a program improving the functioning of afflicted individuals — some of whom acquired the condition years

earlier - would best be valued according to the prevalence

approach.

Inasmuch as a modification-induced change in cigarette

consumption may affect the future costs of persons currently

disease-free, rather than the current costs among the ill, the incidence-based approach is likely to be the preferred

approach. Health data from the incidence-based approach

typically consist of estimates, for selected discount rates, of the changes in present value lifetime health care costs and

in years of life expectancy per person by age and sex which

are estimated to result from smoking at (and quitting from)

specified levels of cigarette consumption.

Table 4.7 Actual and Projected Total and Per Capita Consumption of Cigarettes

Hi Hi

Cigarette Resident Population Per Capita

Consumption (16 yrs. and over) Cigarette

Year (in billions) (i n thousands) Consumption

Actual Cigarette Cons umption

1976 598.91 159,847 3,746.77

1977 603.88 162,898 3,707.10

1978 604.82 165,932 3,644.99

1979 612.04 168,952 3,622.57

1980 618.57 171,953 3,597.32

1981 627.15 174,516 3,593.65

1982 624.01 176,822 3,529.03

1983 596.19 178,966 3,331.30

1984 600.17 180,979 3,316.24

1985 595.14 183,009 3,241.04

Projected Cigarette Consumption

1986 578.66 184,569.6 3,134.67

1987 568.62 186,631.6 3,046.77

1988 557.22 188,323.6 2,958.87

1989 545.14 189,879.6 2,870.97

1990 532.39 191,294.6 2,783.07

1991 519.54 192,766.6 2,695.17

1992 506.23 194,160.6 2,607.27

1993 492.90 195.643.6 2,519.37

1994 479.23 197,095.6 2,431.47

1995 465.58 198,664.6 2,343.57

DATA SOURCES: The figures on total cigarette consumption for the years 1976 to 1985 were taken from The Maxwell Report, Year-end Sales Esti- mates for the Cigarette Industry, by Maxwell Associates, A Division of Furman, Selz, Mager, Dietz & Birney, Inc.. New York. The

data on U.S. resident population came from the Current Population Reports, Series P-25, Nos. 917, 952, and 985. U.S. Department

of Commerce, Bureau of the Census.

19
Smoking Demographics Data. A method was needed for combining the disaggregated health data which are age,

sex, and smoking-level specific in order to reflect average

health impacts that are properly weighted. The most

comprehensive data source on U.S. smoking behavior is the

National Health Interview Survey conducted by the National Center for Health Statistics. 21 From the National Health Inter- view Survey results, data can be compiled on the numbers

of smokers by age, sex, and smoking level consistent with the age groups and smoking-level categories defined by the

available health data.

Price Elasticity of Demand Data. An essential ingredient

in estimating health impacts of cigarette modifications is predicting how consumers will respond to the modified cigarette. Numerous studies have predicted consumer response

to a change in the price of cigarettes through estimating the

"price elasticity of demand" for cigarettes. The most reliable estimates of cigarette price elasticity to date appear in the 1982 study by Lewit and Coate. 22 The health, smoking

demographics, and elasticity data used in the health impact

model are presented in section 5.1.3.

4.3.2 Requirements of the Model

Accommodate Consumption Changes of any Magnitude. A method was needed for arriving at the health impacts of a variety of cigarette modifications. Each cigarette

modification may lead to a different change in cigarette

consumption. Thus, in order to accommodate any possible

change in cigarette consumption, health impacts have to be

determined on a per cigarette basis. In that way, per cigarette health impacts can be applied to a change in cigarette

consumption of any magnitude.

Accommodate Consumption Increases and Decreases.

While one cigarette modification might be estimated to increase cigarette consumption, another might be estimated

to decrease consumption. Since health impacts are assumed to be asymmetric, the model has to be capable of estimating health impacts separately for both increases and

decreases in cigarette consumption.

Include Health Impacts Over the Study Period. Some

health effects can be modeled as instantaneous. For people

in younger age groups, however, measurable health effects

of changes in smoking behavior may be delayed beyond the

time the modification is implemented. These delayed health

effects need to be phased in over the study period.

Accommodate Alternative Discount Rates. Because of

21 U.S. Dept. of Health and Human Services. PHS, NCHS, Provisional Data form the Health Promotion and Disease Prevention Supplement

to the National Health Interview Survey: United States, January-March

1985. Hyattsville, MD, November 1985.

22 Eugene M. Lewit and Douglas Coate, "The Potential for Using Excise Taxes to Reduce Smoking, " Journal of Health Economics, no. 1 (1982), pp. 121-145.

uncertainty concerning the appropriate discount rate, it is desirable that the model be able to accommodate alternative discount rates.

Accommodate Implementation Lag. In order to assess

the effect of delaying implementation of the cigarette modifi- cations, the model has to be capable of estimating health impacts for cigarette modifications taking effect at different points in the study period.

4.3.3 Eight-Step Modeling Procedure

In this section, the health impact model is described as an

eight-step procedure. The first four steps form the core of the model and were developed for estimating instantaneous

health impacts due to a cigarette consumption decrease

occurring at the beginning of the study period and evalu- ated at a zero discount rate. The last four steps integrate

desired features into the model, including the phasing in of health impacts over the study period, and the changes

made to estimate health impacts for consumption increases,

for the implementation lag, and for a positive discount rate. For a complete listing of all equations comprising the health impact model, see appendix B.

STEP 1: Model the Elasticity Data

A cigarette modification may change the quantity of cigarettes smoked in two ways: (1) by changing smoking

status (i.e., whether or not a person smokes), called the

"participation effect," and (2) by changing cigarette consumption levels (i.e., how much a smoker smokes), called the

"consumption effect." The participation effect is expressed in terms of numbers of people changing smoking status, and

the consumption effect in terms of numbers of cigarettes

smoked by smokers. In order to properly account for both

effects, "quantity shares" were estimated, indicating in percent form what portion of the total change in cigarettes is accounted for by the participation effect, and what portion

by the consumption effect. That is, the quantity shares give the relative contributions of the participation and consumption effects to changes in total cigarette consumption.

Two estimates of the price elasticity of demand for cigarettes were used to determine quantity shares:

(1) A "total" price elasticity, giving the overall consumer

response to price changes, denominated in numbers of cigarettes; and

(2) A "participation" price elasticity, giving that portion of the

overall response attributable to changes in smoking

status, denominated in numbers of people.

The quantity share value for the participation effect was esti- mated by taking the ratio of the number of cigarettes

accounted for by the participation effect to the total change

in cigarette consumption. The cigarettes accounted for by

the participation effect were determined by (1) applying the

participation price elasticity to the number of smokers, giving

20
the number of people changing smoking status per percentage price change, and then (2) converting people

changing smoking status to numbers of cigarettes by

applying the average number of cigarettes "smoked" per day

by a person changing smoking status (an average of cigarettes per day per smoker and former cigarettes per day

per quitter). The total change in cigarette consumption per percentage price change was simply the total price elasticity

times the total daily cigarette consumption. The resulting

quantity share expresses the proportion of the change in the

total number of cigarettes smoked accounted for by the

participation effect. The quantity share value for the consumption effect is then determined as the residual proportion.

Modified cigarettes may affect consumer demand through

changes in both cigarette price and in taste and other smoking attributes. Consumption changes induced by taste and other smoking attributes are also expected to have

participation and consumption effects. In the absence of specific estimates of consumer response to changes in cigarette taste and other attributes, the quantity shares described

above were used to apportion the consumer response to taste and other smoking attribute changes between the

participation and consumption effects.

STEP 2: Model the Health Data

Participation Effect. The participation effect is defined as changes in cigarette consumption due to changes in smoking status. In the case of a decrease in cigarette

consumption, two sources could cause smoking status to be

different from what it otherwise would be. Current smokers

might quit (quitters), and nonsmokers who otherwise would

have begun smoking might not start (non-starters). Because

most non-starters are found in the younger age groups and

most databases do not report measurable effects for these

smokers, the health-related participation effect for a decrease

in cigarette consumption should be based mainly on current smokers quitting.

Consumption Effect. The consumption effect is defined as

a change in the number of cigarettes smoked by smokers.

For a decrease in cigarette consumption, health data on the

benefits of quitting can be used to determine the value

gained by smokers lowering their consumption levels. Specifically, in order to assign health impacts to reductions in numbers of cigarettes smoked, dose-response curves should

be drawn using quitting benefits data, showing how health impacts change as cigarette consumption decreases. 23

If health data distinguish among smoking levels, then

average consumption levels should be computed for each

level. Dose-response curves can then be drawn by interpolation between each average consumption level. Once doseresponse curves are developed, slopes can be computed,

representing the health impacts per unit change in cigarette

consumption.

23 G. Osfer, G.A, Colditz, and N.L. Kelly, "The Economic Costs of Smoking and Benefits of Quitting for Individual Smokers, " Preventive Medicine, no. 13 (1984) pp. 377-389.

STEP 3: Model the Smoking Demographics Data

The disaggregated health impacts developed in Step 2 had

to be combined to reflect weighted averages. This was done

by applying to the health impacts a system of weights,

based on current smoker demographics. Specifically, the age, sex, and smoking-level specific health impacts were

weighted by the relative frequency of smokers of the corresponding age groups, sexes, and smoking levels. The sum of these weighted health impacts across all age groups,

sexes, and smoking levels provided the weighted average

health impact.

Use of this weighting system for the participation effect assumes that quitters change their smoking status in the same age, sex, and level proportions as smokers currently

smoke. One might speculate, however, that levels from which

smokers quit are substantially lower than levels at which

current smokers smoke, rendering the above assumption

quite restrictive. Analysis of the smoker demographics data,

however, revealed that, in 1985, smokers smoked on average

20.87 cigarettes per day, and in 1983 (the latest year for which these data were available), smokers who quit smoking

between 1978 and 1983 quit from an average 22.95

cigarette-per-day habit. The small disparity in these numbers

supports using current smoker demographics to create a weighting system for generating average health impacts.

STEP 4: Combine the Quantity Shares and Weighted

Average Health Impacts

Steps 1-3 yield the following: (1) two quantity share values,

indicating the relative proportions of the change in the total number of cigarettes smoked accounted for by the participation and consumption effects, (2) for the participation effect, weighted average per capita health impacts from changing

smoking status, in dollars and life-years, and (3) for the consumption effect, weighted average per cigarette health impacts from changing the number of cigarettes smoked, in dollars and life-years. The next step is to combine the health impacts generated by the participation and consumption

effects to arrive at dollar-value and life-year estimates of composite health impacts per cigarette. This is done by

converting participation effect health impacts to the same

"per cigarette" basis used in the consumption effect, applying

each health impact to its corresponding quantity share, and

then summing the results.

Participation Effect. Before health impacts can be

summed, impacts for the participation effect, expressed on a

per capita basis, must be converted to a per cigarette basis. This is done in two steps. First, an average number of cigarettes "claimed" to be smoked per person is applied to the per capita health impacts. These cigarettes are "claimed"

to be smoked in the sense that they are based on smoker

survey data. Comparisons of survey data with cigarette sales data indicate that smokers significantly underreport cigarette

consumption. The second step, then, was to apply an

"underreporting adjustment" to convert participation effect health impacts from a per "claimed" cigarette basis to a per

"actual" cigarette basis. The participation effect health impacts, now on a per cigarette basis, are next scaled down by the participation effect

21
quantity share. The result is an estimate of the portion of

total health impacts per cigarette accounted for by the

participation effect.

Consumption Effect. The weighted average health impacts

from the consumption effect are already expressed on a per

cigarette basis. Once scaled down by the consumption

effect quantity share, they represent the portion of total health impacts per cigarette accounted for by the consumption effect. The sum of the participation and consumption effect health impacts, each scaled down by their respective quantity share, represents total instantaneous health impacts per

cigarette.

STEP 5: Include Health Impacts Over the Study Period

The above four steps for evaluating health impacts from

cigarette modifications assigns instantaneous impacts only

That is, impacts are assigned only for those age groups

having measurable health effects at the time the cigarette

modification is implemented. Over the study period, however,

younger persons will reach ages at which the health risks of smoking are measured by most databases. To incorporate

these delayed health effects for younger age groups into the model, Step 2 was modified.

In Step 2, the health data used to value both the participation and consumption effects for younger ages were limited

to the costs of smoking only. Smoking cost data differ from

quitting benefit data because the health risk of smoking is not eliminated immediately upon quitting. Since existing

databases do not report substantial health risk from smoking

at these younger ages, quitting benefits for this age group

should be equal in amount to smoking costs. For the participation effect, then, smoking cost data apply, and for the consumption effect, smoking cost dose-response curve data

apply.

It is important to note that the length of the study period

sets the age limit for assigning health impacts. Younger age

groups have been found to deliver a much larger price

response than older age groups. Any change in cigarette

prices could, in the long run, have the greatest impact on

the youngest generation. These impacts could be taken into account by extending the study period.

STEP 6: Modify Model for the Four-Year Lag

To accommodate the requirements of the case studies of section 5, the model must be modified to assume that the

cigarette modification takes effect in the fourth year of the study period. Since, over four years, some of the younger

ages will have become subject to the measured health risks

of smoking, they must be assigned instantaneous health impacts in year four. 24

STEP 7: Modify Model for Alternative Discount Rates

Two changes must be made to incorporate alternative

*The approach taken in the four-year lag analysis uses the same

smoking demographics data discussed in Step 3.

discount rates. First, the basic health data used must be

based on the desired discount rate. Second, appropriate

single present worth discount factors must be added to the

health impact model to discount health impacts occurring over the study period.

STEP 8. Modify the Consumption Effect if Consumption

Increases

For increases in cigarette consumption, health impacts due

to the consumption effect should be valued using smoking

cost dose-response curve slopes for increases in consumption levels, as opposed to quitting benefit dose-response

curve slopes for decreases in consumption.

4.3.5 Linkage to the Supply and Demand Model

Once the health impact model is run, its results need to be

linked to the supply and demand model. That is, the health impact model gives intermediate values that are used in conjunction with the supply and demand model to estimate

aggregate health impacts. To generate aggregate health impacts for the entire United States, these intermediate "per

cigarette" health impacts are applied to the portion of the modification-induced change in cigarette consumption

subject to health impacts. This change in cigarette consumption is based on three values: (1) total U.S. average daily

cigarette consumption, (2) the modification-induced proportional change in U.S. cigarette consumption, and (3) the

proportion of U.S. cigarette consumption subject to health impacts.

Total U.S. Average Daily Cigarette Consumption. The

annual rates projected for baseline cigarette consumption

over the 10-year study period indicate how cigarette

consumption might change over the next 10 years in the absence of any modification to the cigarette. An average of these annual rates of consumption was taken to approximate

the number of cigarettes subject to modification-induced

change per year over the 10-year study period. A 10-year

average was taken for the analysis assuming no lag in implementing the modification, and an average of the six years 1990 through 1995 was taken for the 4-year lag

analysis.

Proportional Change in U.S. Cigarette Consumption.

The proportional change in U.S. cigarette consumption was

that generated by the supply and demand model for the

cigarette modification case scenario under analysis.

Proportion of U.S. Cigarette Consumption Subject to Health Impacts. The cigarette modification generates a change in cigarette consumption, not all of which is subject

to health impacts. The share of total U.S. cigarette consumption smoked by those ages subject to the measured health

risks of smoking over the study period represents the

proportion of consumption subject to health impacts.

The equations for computing aggregate health impacts are as follows:

22
A$i H$i (Qcd/365) EQcd RS, and

AYi = HYi (CW365) EQcd RS,

where A$; = aggregate U.S. health impacts, in dollars of health care costs, for discount rate i,

AYi = aggregate U.S. health impacts, in years of life-expectancy, for discount rate i,

H$i = dollar-value health impacts per cigarette "at

risk" per day, for discount rate i,

HY; = life-year health impacts per cigarette "at

risk" per day, for discount rate i,

Qcd = total U.S. annual average cigarette

consumption,

365 = days per year, for converting annual cigarette consumption to daily cigarette

consumption,

EQcd = proportional change in U.S. cigarette

consumption, and

RS = proportion of U.S. cigarette consumption

subject to health impacts.

Adjusting Health Impacts for Changes in Tar, Nicotine,

and CO Content. The aggregate health impacts detailed above are based only on changes in cigarette consumption

resulting from modification-induced changes in cigarette

price, taste and other smoking attributes. If the cigarette

modification also changes tar, nicotine, and CO content, then

health impacts might be affected. A cigarette potency adjustment can be added to the equations above for estimating

aggregate health impacts given changes in tar, nicotine, and

CO content, but the effect of changes in cigarette chemical

composition on health care costs and life expectancies is not

clear. It may be assumed that health care costs and life expectancies change in some proportion to cigarette chemical composition. If this relationship can be specified as

proportional, the equations above for computing aggregate

health impacts can be modified as follows:

Replace EQcd with [EQcd + p EN(1 + EQcd)],

where p = the proportion of health care costs and life expectancies attributable to tar, nicotine, and

CO, and

EN = the proportional change in tar, nicotine, and

CO content.

4.4 Employment Impacts

Estimation of the employment effects of the cigarette modifi- cations requires several types of data and an impact model

that is linked to the supply and demand model.

4.4.1 Data Requirements for Employment Impacts

There are three types of data needed to estimate employment impacts. First, data are needed on the baseline levels

of employment in each of the economic sectors expected to be significantly affected by the cigarette modifications. These

sectors are tobacco farming, cigarette manufacturing,

tobacco warehousing, non-tobacco cigarette support industries such as paper and energy, cigarette wholesaling, and

cigarette retailing. Second, data are required on the direct employment impacts expected from each of the modifications. Direct impacts in this context refer to those that result immediately from changes in the production process without

taking into account possible changes in the levels of tobacco and cigarette production. These data must be

collected by interviews and analysis of how the modifications

might affect the production process. Third, data are needed

for each economic sector on the elasticities of employment

with respect to levels of production. For example, it must be

known by what percent employment in cigarette wholesaling

is expected to change for every one percent change in cigarette production. The employment data used in selected

impact analyses are presented in section 5.

4.4.2 Employment Impact Model and Linkage to the

Supply and Demand Model

The employment impact model must compute the direct and

the indirect impacts for each of the cigarette modifications

and each of the economic sectors affected. The following

equation permits such computation for a particular modification and is linked to the results of the supply and demand

model:

W, = Dl, + rii N, EQ„

where W, = employment impact for the ith economic

sector,

Dlj = direct employment impact for the ith economic sector,

77; = elasticity of employment for the ith economic sector,

Ni = baseline employment in the ith economic

sector, and

EQi = proportional change in the production level

of the commodity relevant to the ith economic sector.

23

5a Impact Analysis Results

for Five Hypothetical

Cigarette Design

Modifications

This section describes the results of the impact analyses that were conducted for each of the five cigarette design modifi- cations described in section 2: (1) reduced cigarette circumference from 25 mm to 21 mm; (2) increased use of expanded tobacco; (3) chemical additive to the tobacco

blend; (4) increased paper weight from 24 to 32 grams per square meter; and (5) decreased paper porosity from 35 to 10 Coresta units. For each modification, six impact analyses were carried out. The six analyses resulted from the sensitivity analysis with respect to two variables: shift in demand

due to the modification; and the date of implementation.

Three alternative assumptions regarding possible shifts in demand due to changes in the taste or other performance

characteristics of the cigarettes were made: (1) no change;

(2) five percent increase; and (3) five percent decrease. Two

alternative assumptions were made with respect to the date

of implementation: (1) immediate implementation as of January 1, 1986; and (2) delayed implementation until January 1, 1990 with four years advance warning.

Combining the demand shift and the implementation alternatives results in six cases for each of the five cigarette modifications. Section 5.1 summarizes the input data used in the impact

analyses. Then a sample impact analysis report is presented

and its format explained in section 5.2. Next, impact analysis

results for each of the five cigarette design modifications are summarized and discussed in turn in section 5.3. The

section concludes with a discussion of the sensitivity of results to key assumptions and a summary of findings.

5.1 Data Used in the Impact Analyses

As indicated in section 4, the application of the economic

impact model requires a variety of data elements. This

subsection discusses the actual data that were used in conducting the impact analyses. First, the consultants who

provided supporting data are listed and their principal areas

of contribution are identified. Second, the data used by the supply and demand model are presented. Then, the data

used in the fire loss model, the health effects model, and the employment model are presented.

5.1.1 Supporting Data Studies

The impact analyses required data from a number of specialized subject areas. To help meet the extensive data

requirements, the Technical Study Group arranged for consultants, under separate contracts, to perform supporting

studies. These supporting studies are included in Volumes 5 and 6 of the Technical Study Group reports, and are a major source of data used in this report. The data are used in the impact analysis at the direction of the Technical Study

Group; their accuracy have not been verified by the National

Bureau of Standards. Below is a listing of these consultants,

their respective areas of contribution, report titles, and

volume of the Technical Study Group reports in which the work appears:

Fire Statistics — Dr. John Hall, Jr., "Expected Changes in Fire Damages from Reducing Cigarette Ignition Propensity,"

Volume 5, Technical Study Group Reports.

Health Statistics — Dr. Gerry Oster, "Estimates of the Economic and Noneconomic Health Consequences of Smoking, Smoking Cessation, and Reduction in the Amount

Smoked," Volume 6, Technical Study Group Reports.

Industry Cost Data - Dr. Armando Lago, "Cost Analysis of Options for Self-Extinguishing Cigarettes," Volume 6, Technical Study Group Reports.

Agricultural Data — Dr. Daniel Sumner, "The Impact of Cigarette Modifications on the Tobacco Production Industry in the United States," Volume 6, Technical Study Group Reports.

Consumer Response - Dr. Gary Ford and Dr. John Brown,

"The Costs and Benefits to Smokers of Reduced Flammability Cigarettes," Volume 6, Technical Study Group Reports.

Employment Data - Dr. David Greenberg, "The Employment Implications of Proposed Cigarette Design Modifications to Reduce Cigarette Ignition Propensity," Volume 6, Technical Study Group Reports.

It is indicated in the text following when data are drawn from one of these supporting studies. The reader is referred to

25
these sources for information about the data beyond that provided in this report.

5.1.2 Data Used to Solve the Supply and Demand

Model

5.1.3 Fire Loss Data

The baseline fire loss data that are used in the impact

analyses are presented in table 5.4. These are taken from

the supporting study on fire statistics. 28

The first category of data needed to solve the supply and

demand model consists of the values used for the model

parameters. Table 5.1 presents the most likely range and the value within the range that has been used for each of the parameters. The data for all but the last parameter are drawn from the supporting study on agricultural data. 25 The

share of modification costs not included in exported

cigarettes was set at 1.0 at the direction of the Technical

Study Group. This is eguivalent to assuming that the envi- sioned cigarette modifications would be required only for cigarettes sold in the United States, and that separate

production facilities could be dedicated to cigarettes

destined for the export market. The next data category for the supply and demand model

focuses on the proportional changes in each of the exogenous variables. Since no reliable estimates are avail- able for the exogenous variable specifying shifts in demand

that may result from the modifications, the Technical Study

Group recommended that the impact analyses be

conducted for no change in exported cigarettes and for three alternative changes in the demand for domestic

cigarettes: no change, five percent increase, and five percent decrease. For the three remaining exogenous vari- ables, the values used in the impact analyses for four of the

cigarette modifications are drawn from the supporting study on industry cost data. 26 The cost data for the modification of decreasing the paper porosity are based on discussions

with a representative of a major cigarette paper manufacturer, who indicated that decreasing paper porosity would

likely have little impact on paper costs, and that the direction

of change could be either up or down. 27 The data for all five modifications are presented in percentage change form in table 5.2. The third type of data needed for the supply and demand

model concerns the baseline values for the endogenous

variables. For example, the total number of cigarettes and

pounds of tobacco produced, and the current prices of cigarettes and tobacco are needed. These are needed to determine the absolute changes in prices and quantities (in addition to the proportional or percentage changes). The

initial or baseline values used for the endogenous variables

in the impact analyses are presented in table 5.3 and are drawn from the supporting study on agricultural data, as well as from the cigarette industry report called the Maxwell

Report.

25 Daniel A. Sumner, "The Impact of Cigarette Modifications on the Tobacco Production Industry in the United States, " Report No. 6, Technical Study Group, table 3. 26Armando M. Lago, and Jennifer A. Shannon, "Cost Analysis of Options for Self-Extinguishing Cigarettes, " Report No. 6. Technical Study

Group.

"Clifford M. Kaufman, Ecusta Corporation, Pisgah Forest, NC, Interview

in Washington, D.C., July 1987.

5.1.4 Health Impact Data

As noted in section 4.3, health data estimated using an

incidence-based approach are best suited to the purposes

of this study. According to Shultz, 29 'An analytical study by

Oster and colleagues . . . represents the most sophisticated

application of this [incidence-based] methodology to the costs of cigarette smoking." Dr. Oster's health data, summarized in the supporting study of health data, consist of changes in years of life expectancy and in medical care

costs for the treatment of the three major diseases causally

linked to smoking: (1) lung cancer, (2) coronary heart

disease, and (3) chronic obstructive pulmonary disease. These data, presented in tables 5.5 and 5.6, were used in developing dose-response curves expressing health impacts as a function of cigarette consumption. 30 A limitation of these health data is that they are largely

based on studies done in the 1950's and 1960's. Because

the duration of smoking for both men and women at this time was shorter than the duration of smoking for the current

population, the health data derived from these earlier studies

may be conservative estimates of actual health impacts

today.

Elasticity Data. The elasticity data used for estimating

health impacts 31 are as follows:

Total Retail Price Elasticity of Demand for Cigarettes: -0.42

Participation Retail Price

Elasticity of Demand for Cigarettes: -0.26

These retail elasticity values are based on the smoking

behavior of 20-74 year-olds. Both were found to be statisti- cally significant at a 5% confidence interval on a two-tailed

test.

28 John R. Hall, Jr. , "Expected Changes in Fire Damages from Reducing

Cigarette Ignition Propensity, " Report No. 5, Technical Study Group.

29J. M. Shultz, "Perspectives on the Economic Magnitude of Cigarette

Smoking," New York State Journal of Medicine (July 1985), pp. 302-306.

3 °Gerry Oster, "Estimates of the Economic and Noneconomic Health Consequences of Smoking, Smoking Cessation and Reductions in the Amount Smoked, " Report No. 6, Technical Study Group. This report was based on earlier work reported in Oster, Colditz, and Kelly, "The Economic Costs of Smoking and Benefits of Quitting for Individual Smokers," Preventive Medicine, no. 13 (1984) pp. 377-389 and Oster, Huse, Delea, and Colditz, "Cost-Effectiveness of Nicotine Gum as an

Adjunct to Physician's Advice Against Cigarette Smoking," Journal of the American Medical Association, no. 256 (1986) pp. 1315-1318. ^Lewit and Coate, "The Potential for Using Excise Taxes to Reduce

Smoking," p. 135.

26
Smoking Demographics Data. Smoking demographics

data were computed using raw data compiled in the

National Health Interview Survey conducted in 1985 by the

National Center for Health Statistics. Table 5.7 presents the data computed for the number of smokers consistent with the five-year age groups and the three smoking-level cate- gories used in the health data. Several other values were computed from the Health Inter- view Survey data for use in the health impact model. They

are as follows:

Total Cigarettes Smoked Per Day, Ages 18-24: 128,128,461

Total Cigarettes Smoked Per Day, Ages 25-34: 274,758,659

Total Cigarettes Smoked Per Day, Ages 35-79: 628,525,665

Total Cigarettes Smoked Per Day, Ages 80 + : 8,084,852

Average Cigarettes Smoked Per Day Per Smoker: 20.87

Average Cigarettes Formerly Smoked Per Day

Per Quitter: 32 22.95

Average Cigarettes Smoked Per Day, Light

Smokers: 9.50

32 This value is based on data from the 1983 National Health Interview Survey.

Average Cigarettes Smoked Per Day,

Moderate Smokers: 23.02

Average Cigarettes Smoked Per Day, Heavy

Smokers: 44.23

Proportion of U.S. Cigarette Consumption

Subject to Health Impacts: 33 0.83

Note that the values listed above for average cigarettes

smoked per day by light, moderate, and heavy smokers were used as midpoints for developing dose-response

curves.

Data for Step 4, Combining the Quantity Shares and

Weighted Average Health Impacts. Participation effect health impacts were converted to a per cigarette basis by

applying an "underreporting adjustment." This accounts for the fact that smokers smoke more cigarettes per day than

they claim. The value used for the underreporting adjustment was 0.67. This value is the ratio of "claimed" versus

"actual" total daily cigarette consumption. Claimed cigarette

consumption for all smokers (ages 12 + ) was the sum of the

33 This value is the ratio of total cigarette consumption for ages 25-79

versus total cigarette consumption for all ages (ages 12+).

Table 5.1 Definitions, Range, and Values of Parameters Used in the Supply and

Demand Model

Symbol Definition Range Value Used

0.2 - 0.5 0.3

1.0 - 5.0 3.0

0.5 - 1.5 1.0

1.0 - 5.0 2.0

0.05 - 0.10 0.07

0.003 - 0.010 0.005

0.20 - 0.25 0.237

0.10 - 0.30 0.15

0.85 - 0.90 0.9

0.5 - 0.7 0.6

0.1 - 0.4 0.2

0.0 - 00 1.0

0.0 - 1.0 1.0

Ice

ltd

Hte

a td

<*K

e C d

u

Wholesale price elasticity of domestic demand for cigarettes

Wholesale price elasticity of export demand for cigarettes

Derived demand elasticity for domestic tobacco

Price elasticity of export demand for tobacco

Cost share of domestic tobacco in cigarettes

Cost share of paper in cigarettes

Cost share of Federal excise tax in cigarettes

Cost share of lease rates in tobacco production

Quantity share of U.S. cigarettes in domestic market

Quantity share of U.S. tobacco in U.S. cigarettes

Elasticity of marginal cost of tobacco

Agricultural policy response elasticity for tobacco

Share of modification costs not included in exported cigarettes

Source: D. A. Sumner, "The Impact of Cigarette Modifications on the Tobacco Production Industry

in the United States," Report No. 6 , Technical Study Group, Table 3, January 1987.

27
Table 5.2 Percentage Changes in

Tobacco Content, Paper Costs, and

Other Costs for Selected Cigarette

Modifications.

Cigarette

Percent Change

Tobacco Paper Other

Modification Content Costs Costs

Decrease Circumference

from 25 to 21 mm -29.4 -16.0 + 1.40

Increase Percentage of Expanded Tobacco -12.73 -0.58

Increase Paper Weight

from 24 to 32 g/m2 48.2 0.3

Decrease Paper Porosity2 from 35 to 10 Coresta

Add Chemical to Tobacco Blend 2.83

(1) Data based on informal discussions with Dr. C. M. Kauf- man, Ecusta Corporation, Pisgah Forest, NC, July 1987.

SOURCE: A. M. Lago and J. A. Shannon, "Cost Analysis of Options for Self-Extinguishing Cigarettes," Report

No. 6.

total cigarette consumption figures listed above for ages

18+ and an estimate of total cigarette consumption by 12- 17 year-olds of 52,328,767 cigarettes per day. 34 Actual cigarette consumption was the daily eguivalent of the 1985 total cigarette consumption figure [1,630,520,500 (=595.14

bill./365)] from The Maxwell Report listed in table 4.7.

Data from the Health Impact Model. The health impact

model described in section 4.3 was run using the above

data. Table 5.8 presents the results.

5.1.5 Employment Data

All three categories of the employment data used in the impact analyses are presented in table 5.9. The baseline

employment levels and the direct employment effects for each of the six sectors are given in terms of full-time equivalent jobs. The direct effect on the cigarette manufacturing

sector for the circumference modification is the product of the proportional change in the tobacco content per cigarette

times the number of jobs directly associated with tobacco

handling and preparation in the cigarette manufacturing

plants (i.e., 6000 full-time equivalent jobs). The elasticities of employment with respect to levels of production are presented at the bottom of the table, along with the proportional change variable from the supply and demand model

that is applicable to each elasticity. These data are drawn

from the supporting study on employment data. 35

5.2 Format of the Impact Analysis Reports

An example of the impact analysis reports is given in table

5.10. The report consists of a single page that contains a

description of the modification, a statement of the assumptions of the case, and detailed numerical estimates of the changes in the most significant variables expected to be

affected by the modification. These variables and their corresponding estimated changes are grouped into six major impact categories, the first being principal, or first- order, impacts and the remaining five secondary, or secondorder impacts:

(1) Fire Damage Impacts;

(2) Tobacco Farming Impacts;

(3) Cigarette Industry Impacts;

(4) Tax & Consumer Impacts;

(5) Health Impacts; and

(6) Employment Impacts.

Note that second-order fire damage impacts are also esti- mated, but these are small and are combined with the first- order fire damage impacts. The first-order impacts are those

that would result from the reduced ignition propensity. The

second-order effects (positive or negative) are those that may arise from the changed level of cigarette consumption

because of shifts in supply (production costs) and demand

(taste). For each of the ten years of the study period, the impacts on three types of fire losses are reported: fire deaths, fire injuries, and property damage from fires. The

impact on fire deaths is stated in two ways: the number of

lives saved (deaths averted) and the number of years of life expectancy gained. These two ways of stating the fire death

impacts should be viewed as alternatives to a single benefit

that should not be double counted. Each set of impacts are computed for three alternative assumptions regarding the

3 *Kenneth E. Warner, "Consumption Impacts of a Change in the Federal

Excise Tax, " The Cigarette Excise Tax: April 1 7, 1 985, Smoking Behavior and Policy Conference Series, Institute for the Study of Smoking Behavior and Policy, Harvard University (April 17, 1985) p. 95.35 David Greenberg, "The Employment Implications of Proposed Cigarette Design Modifications to Reduce Cigarette Ignition Propensity,

Report No. 6, Technical Study Group.

28
Table 5.3 Definitions, Range, and Values of Endogenous Variables Used in the

Supply and Demand Model

H

Symbol Definition Units Range Value Used

Qcd Quantity of U.S. cigarettes sold in domestic market billion/year 560 - 600 583

Qce Quantity of U.S. cigarettes sold in export market billion/year 60 - 80 65

Qc Total quantity of U.S. cigarettes produced billion/year 620 - 680 648

Qtd Quantity of U.S. tobacco sold in domestic market million lbs/year 800 - 1000 900

Qte Quantity of U.S. tobacco sold in export market million lbs/year 500 - 700 600

Qt Total quantity of U.S. tobacco produced million lbs/year 1300 - 1700 1500

P(:d Price of cigarettes sold in domestic market $/l,000 33 - 36 33.75

Pee Price of cigarettes sold in export market $/l,000 25 - 28 25.75

Ptd Price of U.S. tobacco sold in domestic market $/lb 1.40 -1.60 1.50

Sources: D. A. Sumner, "A Study of the Impact of Cigarette

in the United States," Report No. 6, Technical St Modifications on the Tobacco Productionudy Group.

Industry

J. C. Maxwell, Jr., The Maxwell Report; Year-End Saleis Estimates for the Cigarette Indust ry 1 January 1987.

effectiveness of the modification: 25 percent, 50 percent,

and 75 percent reductions in the probability of igniting furni- ture and mattresses. In addition to the information on

impacts for each of the ten years, the results for the entire study period are summarized by computing the present

value of each impact series for both a zero discount rate and a five percent rate. The zero discount rate is equivalent

to a direct summing of the yearly impacts over the study

period.

Note that when a positive discount rate is used on life years, a two-fold discounting process occurs. First, the

conversion of each undiscounted life saved to its equivalent

number of years of extended life requires that the future added years be discounted to the time of the life saving.

Second, each converted life year must then be discounted

to the present from the time of occurrence of the saving of the life. Thus, as is apparent from table 5.10, the effect of discounting on the number of life years saved is much

greater than on the other fire impact measures.

It is necessary to discount lives and life-years saved, as

well as dollars, in order to preserve a consistent relationship

between dollars and lives/life-years over time. This is a

required procedure for making cost-effective decisions

involving expenditures on life-safety programs.

To illustrate the problem that arises from failure to maintain a consistent time relationship between dollars and lives,

Table 5.4 Baseline Data Used to

Compute Fire Loss Impacts.

(Per Billion Cigarettes Consumed)

1

Property Loss

Year Fires Deaths Injuries (Thousand $)

1986 369.2 2.845 12.837 789

1987 356.9 2.816 12.707 798

1988 344.9 2.784 12.581 806

1989 333.8 2.763 12.562 816

1990 322.5 2.734 12.501 823

1991 311.7 2.718 12.492 833

1992 301.4 2.710 12.508 843

1993 291.2 2.699 12.497 852

1994 281.6 2.709 12.562 866

1995 271.7 2.704 12.536 875

SOURCE: John R. Hall, Jr., "Expected Changes in Fire Damages from Reducing Cigarette Ignition

Propensity," Report No. 5, Technical Study

Group.

29
Table 5.5 Health Date Used in the Health Impact Model: Costs of Smoking

Additional Expected Lifetime Medica 1 Care Costs for Reductions in Years the Treatment o Discounted at

f Smoking-Related Diseases

Percent Discounted at 5 (1986$) Percent

of Life Expectancy

Discounted at C Percent Discounted at 5 Percent

Age/ Sex Group

Smoking Level Smoking Level Smoking Level Smoking Level

Light Moderate Heavy Light Moderate Heavy Light Moderate Heavy Light Moderate Heavy

Men

35-39 6,305 10,785 16,944 1,332 2,278 3,579 4.69 6.58 8.16 1.01 1.39 1.74 40-44 6,209 10,590 16,502 1,594 2,718 4,236 4.51 6.35 7.88 1.19 1.63 2.03

45-49 6,006 10,167 15,700 1,844 3,122 4,821 4.20 5.96 7.41 1.31 1.83 2.28

50-54 5,612 9,360 14,235 2,014 3,359 5,108 3.77 5.43 6.80 1.38 1.95 2.45

55-59 5,154 8,479 12,727 2,154 3,543 5,318 3.26 4.81 6.07 1.39 2.01 2.55

60-64 4,612 7,483 11,139 2,227 3,614 5,379 2.69 4.10 5.24 1.33 1.98 2.54

65-69 3,980 6,374 9,462 2,180 3,493 5,184 2.07 3.34 4.35 1.17 1.83 2.39

70-74 3,226 5,158 7,684 1,989 3,180 4,738 1.41 2.53 3.40 0.91 1.56 2.10

75-79 2,383 3,798 5,699 1,629 2,596 3,896 0.82 1.77 2.52 0.59 1.21 1.72

Women

35-39 3,187 5,774 12,063 574 1,039 2,171 2.04 3.89 5.45 0.41 0.70 0.97

40-44 3,138 5,621 11,320 698 1,251 2,519 2.01 3.82 5.34 0.50 0.85 1.17 45-49 3,204 5,745 11,279 859 1,539 3,022 1.87 3.62 5.09 0.56 0.97 1.33 50-54 3,081 5,512 10,832 981 1,755 3,449 1.68 3.36 4.76 0.61 1.07 1.48 55-59 2,924 5,201 10,267 1,100 1,957 3,863 1.44 3.03 4.35 0.62 1.14 1.60

60-64 2,720 4,771 9,501 1,195 2,096 4,175 1.15 2.64 3.86 0.59 1.16 1.66 65-69 2,401 4,156 8', 371 1,234 2,135 4,301 0.82 2.18 3.29 0.50 1.12 1.64 70-74 1,872 3,208 6,561 1,086 1,862 3,807 0.39 1.62 2.60 0.31 0.94 1.48

75-79 1,365 2,325 4,802 893 1,521 3,141 -0.01 1.07 1.92 0.07 0.70 1.22

Note: Smoking levels are defined as follows : light smoking, 1-19 cigarettes per day; moderate smoking, 20-39 cigarettes. per day ; and heavy smoking , 40+ cigarettes per day.

Source: Report from Dr. Gerry Oster to Mr. Colin Ch urch, Estimates of the Economic anc Noneconomic Health

Consequences of Smoking, Smoking Ce ssation, and Reductions iil the Amount Smoke d, Decemb er 12, 1986. This report was based on earlier wo rk reported in Oster, Colditz, anc Kelly, mic Costs of " The Econo Smoking and Bene fits of Quitting for Individual Smokers," Pr<aventive Medicine, No. 13, 1984,

pp. 377--389 and Oster, Huse Delea, and Colditz, "Cost-Effec :iveness of Nicoti ne Gum as an Adjunct

to PhysJ.cian's Advice Against Cigarette Smoking," Journal of the Amei ican Medi cal Association,

No. 256, 1986, pp. 1315-1318.

consider the following example. Suppose we wish to choose

the'most cost-effective of two public health programs, A and

B. Program A costs $10,000 today and saves one life today, and Program B costs $10,000 today and saves one

life in 40 years. Applying discounting techniques to the problem would tell us that $10,000 today is equivalent to spending $70,000

(constant dollars) in 40 years (using a 5% discount rate and

assuming no price inflation or deflation). This would produce

a time consistent cost-per-life-saved ratio of $70,000/1 =

70,000. Alternatively, applying discounting techniques would

tell us that saving a life in 40 years is time equivalent to saving 1/7 life today (also using a 5% discount rate), again

producing a time consistent cost-per-life-saved ratio of 70,000 (i.e., $10,000/ 1/7 = 70,000). In comparison, maintaining a consistent time relationship between dollars and

lives for Program A would result in a cost-per-life-saved ratio of $10,000/1 = 10000. Thus applying principles of time

adjustment to the analysis would demonstrate that Program

A costs less per life saved, and, hence, is preferred on economic grounds.

In contrast, assigning equal value to a life regardless of when it occurs means that if it is worth spending $70,000

(constant dollars) in year 40 to save a life, it is worth

spending $70,000 (constant dollars) in year 1 to save a life. And if it is worth spending $10,000 (constant dollars) in year

1 to save a life, it is worth spending $10,000 (constant

dollars) in year 40 to save a life. Yet why should we spend

$70,000 in year 1 to save a life when we could save the life with an expenditure of only $10,000, leaving funds for additional life-saving or other activities? Failure to discount would

lead to the false conclusion that the two health programs were of equal cost effectiveness. 36

36For further discussion of the reason for discounting future life years see Milton C. Weinstein and William B. Stason, "Foundations of CostEffectiveness Analysis for Health and Medical Practices, " The New

England Journal of Medicine (March 1977) p. 720.

30
Table 5.6 Health Data Used in the Health Impact Model: Costs of Smoking

Reductions in Expected Lifetime Medical Care Costs for Increases in Years

the Treatment o f Smoking-Related Diseases ;i986$) of Life Expectancy

Discounted at Percent Discounted at 5 Percent Discoun ted at C Percent Discoun ted at 5 Percent

Age/ Sex Group

Smoking Level Smoking Level Smoking Level Smoking Level

Light Moderate Heavy Light Moderate Heavy Light Moderate Heavy Light Moderate Heavy

Men

35-39 4,825 8,622 13,419 940 1,680 2,615 3.64 5.08 6.21 0.72 0.99 1.22 40-44 4,615 7,984 12,233 1,074 1,857 2,846 3.27 4.60 5.62 0.78 1.07 1.32 45-49 4,240 7,056 10,743 1,166 1,940 2,954 2.81 4.00 4.90 0.79 1.10 1.35

50-54 3,748 5,944 9,079 1,208 1,916 2,926 2.28 3.32 4.07 0.75 1.07 1.32

55-59 3,118 4,710 7,358 1,163 1,757 2,745 1.74 2.60 3.20 0.67 0.97 1.21 60-64 2,471 3,597 5,869 1,079 1,571 2,564 1.22 1.90 2.36 0.55 0.83 1.03 65-69 1,844 2,643 4,477 922 1,321 2,238 0.78 1.32 1.65 0.41 0.66 0.83

70-74 1,256 1,811 3,182 720 1,038 1,824 0.41 0.82 1.06 0.26 0.47 0.61

75-79 805 1,188 2,156 526 776 1,408 0.17 0.49 0.67 0.14 0.32 0.44

Women

35-39 2,150 4,301 8,849 365 730 1,503 1.65 3.18 4.41 0.31 0.54 0.73

40-44 2,071 4,047 8,290 423 826 1,692 1.50 2.94 4.10 0.35 0.60 0.82

45-49 2,095 4,037 8,196 508 979 1,987 1.29 2.64 3.71 0.36 0.64 0.88

50-54 1,917 3,598 7,383 546 1,026 2,105 1.05 2.28 3.25 0.35 0.65 0.91

55-59 1,686 3,064 6,529 574 1,043 2,224 0.75 1.85 2.69 0.31 0.63 0.89

60-64 1,418 2,550 5,748 567 1,020 2,299 0.46 1.40 2.10 0.24 0.56 0.81

65-69 1,111 2,013 4,707 515 934 2,184 0.19 0.97 1.52 0.15 0.45 0.69

70-74 828 1,514 3,625 449 821 1,966 -0.03 0.59 1.01 0.04 0.32 0.52

75-79 553 1,009 2,454 352 642 1,562 -0.14 0.33 0.63 -0.04 0.21 0.38

Noce: Smoking levels are defined as follows : light smoking, 1-19 cig arettes per day; moderate smoking, 20-39

cigarettes per day ; and heavy smoking , 40+ cigarettes per day.

Source: Report from Dr. Gerry Oster to Mr. Colin Church, Estimates of the Eccinomic and Noneconomic Health

Consequences of Smoking, Smoking Ce ssation, and Reductions in the Amount Smoked, December 12, 1986. This rej>ort was based on earlier wo rk reported in Ost er, Colditz, ancI Kelly, The Economic Costs of " Smoking and Benefits of Quitting for Individual Smoke rs," Preventive Medicine, No. 13, 1984,

pp. 377--389 and Oster, Huse , Delea, and Colditz, "Cost-Effectiveness of Nicotine Gum as an Adjunct

to Physician's Advice Against Cigarette Smoking," Journal of the American Medical Assoc iation,

No. 256 1986, pp. 1315-1318.

The Tobacco Farming Impacts are presented next. These

include the effects of the cigarette modifications on signifi- cant economic variables of the tobacco farming sector. For each economic variable, the units of measurement are given

along with the absolute change and the percentage change

expected to result. The first variable is the price of U.S. produced tobacco. The 1986 price of tobacco was about

$1.50 per pound. The next two variables are the quantities

of US tobacco sold in the domestic and export markets.

Total sales in both markets for 1986 were about 1500

million pounds. The fourth Tobacco Impact variable is revenue, which is the product of the price and the total quantity sold. This was about $2.25 billion in 1986. The fifth variable estimates changes in the revenue expected to be

earned by the holders of the tobacco growing rights. The

last tobacco sector variable is called producers' surplus and

is a measure of the profits expected to be earned by

tobacco growers. It is estimated as total tobacco revenue

less costs of production less quota lease payments to

holders of tobacco growing rights (even if the growers and

rights holders are the same party). These estimates are derived using eqs. (1) through (4) of table 4.6. The Cigarette Industry Impacts include similar variables of significance to the cigarette industry. First is the wholesale

price of cigarettes. This price includes the federal excise tax

of $8 per thousand and was $33.75 per thousand in December 1985. The next two variables are the quantities of U.S produced cigarettes sold in the domestic and export

markets. The domestic sales in 1986 were about 583 billion cigarettes, while the export sales were about 65 billion cigarettes. The fourth cigarette impact variable is company

revenue, which is the product of the price (net of the federal excise tax) and the total quantity sold. Revenue was about

$16.7 billion in 1986.

The fourth impact category includes the federal tax revenue from the excise tax and an economic measure of consumer satisfaction called "Consumers' Surplus." The

federal excise tax is levied on cigarettes sold to the

31
Table 5.7 Data Used in the Health

Impact Model: Number of Smokers by

Age, Sex, and Smoking Level

Table &8 Health Impact Model: Results

LAge/Sex

Group

Smoking Level

Light Moderate Heavy

Men

25-29 1,666,782 1,834,197 269,638

30-34 1,249,581 1,765,457 639,926

35-39 925,225 1,623,575 594,598

40-44 606,222 1,308,461 505,850

45-49 516,630 1,108,678 421,240

50-54 396,307 866,801 381,493

55-59 418,716 954,575 349,154

60-64 455,495 694,539 351,124

65-69 304,998 412,931 185,628

70-74 288,958 300,528 60,201

75-79 66,055 85,783 40,982

Women

25-29 1,698,120 1,613,576 185,879

30-34 1,352,630 1,418,967 280,645

35-39 1,055,831 1,238,938 359,603

40-44 852,849 1,131,875 324,219

45-49 695,662 1,014,416 275,589

50-54 676,394 870,198 162,463

55-59 708,978 897,446 159,714

60-64 625,800 662,476 83,405

65-69 450,579 464,475 53,438

70-74 381,295 268,673 18,807

75-79 178,298 126,428 19,962

NOTE: Smoking levels are defined as follows: light smoking,

1-19 cigarettes per day; moderate smoking, 20-39

cigarettes per day; and heavy smoking, 40 +

cigarettes per day.

domestic wholesale market and is included in the wholesale

price. State and local cigarette taxes are levied after the manufacturer sells to the distributor and are not included in the wholesale price. Because the supply and demand

model is based on the wholesale market for cigarettes, only

the federal taxes are included explicitly in the analysis.

Although state tax rates vary widely, the total revenue

currently collected by all the states combined is almost identical to federal collections because the weighted average

state tax rate is 16.2 cents per package, 37 just slightly

higher than the 16 cents per package implied by the federal

tax rate of eight dollars per 1000. Local (municipal and

county) cigarette tax revenue currently is about 5 percent of

1

Cigarette Modlflcatlon Case Scenario Direction of Health Impacts Per Clgsrette

Discount Lag Cigarette Consumption

at Risk Per Daya Medical Care Life Expectancy

Rate (I) specification Change Costs (S) (life-years)

no lag decrease -197 +0.114

no lag Increase +199 -0.097

4-yr . lag decrease -189 +0.109

4-yr. lag Increase +194 -0.094

5 no lag decrease -44 +0.025

5 no lag Increase +48 -0.022

5 4-yr. lag decrease -37 +0.020

5 4-yr. lag increase +40 -0.019

aHealth Impacts listed are those generatec i>y utodlf lcatlon-lnduced cigarette

consumption changes only. Health Impacts due to possible changes In tar, nicotine, and C content are not Included. Result s Indicate Impacts per cigarette at risk" per day , meaning per cigarette Impacts based on cigarettes

smoked by 25- to 79-year-old s only.

the size of federal excise tax revenue. 38 Thus, a rough esti- mate of the impact on federal, state, and local cigarette taxes combined could be obtained by multiplying the

federal excise tax impact reported in the table by a factor of 2.05. The second impact in this fourth category is Consumers'

Surplus, which is a measure of the difference between what consumers are willing to pay for a product and what they

are required to pay. Cigarette modifications can affect consumers' willingness to pay through changes in taste or convenience, or what they are required to pay through

changes in production costs. In these impact analyses,

Consumers' Surplus takes into account estimated changes in production costs, together with alternative assumptions

regarding changes in demand.

The fifth impact category covers the effects on medical

costs and years of life expectancy associated with changes

in cigarette consumption. These impacts are derived by

tracing the modification-induced changes in cigarette

production costs and shifts in the demand for cigarettes

through the economic model to arrive at changes in cigarette consumption. Changes in cigarette consumption are then linked to health data that relate rates of daily cigarette

consumption to the two categories of cigarette health damage included in the study: medical care costs and

losses in life expectancy. Changes in medical care costs are

stated in millions of dollars and changes in life expectancy

are stated in years of life. Both health care damage vari- ables are stated in present value terms discounted at zero and five percent over the life of the consumer. The last impact category covers the employment impacts

of the cigarette modifications. There are six economic

sectors related to cigarette production that could be affected

37 The Tobacco Institute, The Tax Burden on Tobacco: Historical Compilation, vol 21 (1986), (Washington DC: The Tobacco Institute), p. 204. 38 The Tobacco Institute, The Tax Burden on Tobacco, table 1, p. 4.

32
Table 5.9 Data Used to Compute Direct and Indirect Employment Effects.

SECTOR Tobacco

35,000

Cigarettes

50,000

Warehouse

1,400

Support

7,000

Wholesale

34,500

Retail

31,000

BASELINE EMPLOYMENT

(FT Equivalent Jobs)

DIRECT EFFECTS

(FT Equivalent Jobs)

Decrease Circumference 6000 xEU.

td -240

Increase % Expanded Tobacco

Increase Paper Weight + 1000 + 500

Decrease Paper Porosity

Add Chemical + 165 + 125

INDIRECT EFFECTS

Employment Elasticities with respect to

1.5 EQt1.5 EQc1.2 EQt1.0 EQc1.0 EQc

0.5 EQcd

NOTATION: EU, d EQ,

EQC EQcd

proportional change in domestic tobacco content per cigarette

proportional change in quantity of tobacco

proportional change in quantity of cigarette sales proportional change in quantity of domestic cigarette sales

SOURCE: Source: David Greenberg, "The Employment Implications of Proposed Cigarette Design Modifications to Reduce

Cigarette Ignition Propensity," Report No. 6, Technical Study Group.

by the product modifications. These are: tobacco farming;

cigarette manufacturing; tobacco warehousing; support

industries such as utilities, paper, and flavorings; wholesale

distribution; and retail distribution including vending

machines. For each of these economic sectors the esti- mated impact of the modification is stated in terms of the change in the number of full-time equivalent jobs. The total employment impact for all sectors combined is also presented. In interpreting these employment impacts, one

should note that significant part-time employment in some of these sectors, especially tobacco farming, means that the number of persons affected by the modification is greater

than reflected in the full-time equivalent estimate.

5.3 Results of the Analysis

The results of the impact analyses presented in full detail in appendix C are summarized in this subsection. Here the six impact analyses for each particular modification have been

consolidated into a single table. These are presented below

for each modification in tables 5.11 through 5.15. The first is discussed in greater detail to provide a framework for understanding the others. The fire loss impacts presented in these five tables all assume a 75 percent reduction in igni- tion propensity.

5.3.1 Decrease in Circumference

Table 5.2 showed that decreasing cigarette circumference is estimated to reduce the cost of producing cigarettes. The

reduction in cost is driven by a decrease of nearly 30

percent in the quantity of domestic tobacco required. Paper

costs are estimated to decrease by 16 percent, and other costs by 0.34 percent on net. The total change in production cost is estimated to be a decrease of about 3 percent.

Table 5.1 1 summarizes the results of two analyses for this modification. (See appendix tables C.1 through C.6 for more

detail.) First the types of impacts are listed, grouped by

major category. Then, in the first two data columns, results

33
Table 5.10 Illustration of Impact Analysis Report Presented in Appendix C

Modification: Decrease Circumference from 25 to 21 millimeters Assumptions: Four-year Grace Period, and No Change in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = -29.40 Paper Cost = -16.00 Other Cost = -1.40

Change in Tar and Nicotine (%): 0.0

First-Order Impacts:

Fire Impacts:: Lives !Saved (or Life Years Gain*id), Injtiries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life Number Prop Live Number Prop

Lives Years Injured Loss Lives Years Injured Loss Lives Years Injured Loss

1986

1987

1988

1989

1990 353 10833 1614 106 720 22114 3294 217 1088 33395 4975 328

1991 342 10509 1574 105 699 21454 3212 214 1056 32399 4851 323

1992 333 10210 1535 103 679 20843 3134 211 1025 31476 4733 319

1993 323 9901 1494 102 658 20212 3049 208 994 30522 4604 314

1994 315 9662 1460 101 643 19724 2980 205 970 29786 4500 310

1995 305 9369 1415 99 623 19127 2889 202 941 28884 4363 305

PV Sum (0%): 1971 60483 9091 616 4023 123473 18559 1257 6075 186462 28026 1899

PV Sum (5%): 1377 18714 6350 430 2811 38203 12964 877 4245 57693 19577 1324

Second-Order Impacts:

Tobacco Farming Impacts: Units Absolute Change % Change

Price of Tobacco $/Lb -0.08 - 5.0 Domestic Tobacco Sales Million Lbs -195 -23.7

Export Tobacco Sales Million Lbs 55 10.0

Total Tobacco Revenue Million $ -302 -1 4.7 Quota Lease Revenue Million $ -92 -29.8

Producers' Surplus Million $ -34 N.A.

Cigarette Industry Impacts:

Price of Cigarettes

Domestic Cigarettes Sales

Export Cigarettes Sales

Total Cigarette Revenue

(Net of Federal Excise Tax)

Tax & Consumer Impacts:

Federal Excise Tax Revenue

Consumers' Surplus

UNITS

$/1000

Millions

Millions

Million $

Units

Million $

Million $

Absolute Change

-1.13

5348

815

-456

Absolute Change

43

605

% Change

-3.3

1.0

1.4 -3.0

% Change

1.0 N.A.

Health Impacts:

Discount Rate %

5 %

Change in Medical Costs (PV 1986 Million $) 2208

456

Change in Expected Life (PV Years)

-1068777

-211320

Employment Impacts by Sector (Change in Fuli-Time Equivalent Jobs): 2 Sector: Tobacco Cigarette Warehouse Support Wholesale Retail TOTAL

Impact: -4887 -898 -156 -153 328 142 -5623

34
Table 5.11 Impacts of Decreasing Cigarette Circumference from

25 to 21 Millimeters: Summary

| Bifl

Four-Year Grace Period Immediate Implementation

Change in Change in Change in Change in Impacts Amount Percent Amount Percent

First-Order Impacts

Fire3 Lives saved OR 4,200 75.0 8,400 75.0

Life-years gained 57,700 75.0 115,000 75.0

Injuries avoided 19,600 75.0 38,500 75.0

Property loss avoided (mill.$) 1,300 75.0 2,500 75.0

Second-Order Impacts

Tobacco Farmingb Tobacco price ($/lb.) -0.08 -5.0 -0.08 -5.0

Domestic sales (mill. lbs.) -190 -23.7 -210 -23.7

Tobacco revenue (miil.S) -300 -14.7 -330 -14.7

Cigarette lndustryb

Cigarette price ($/1000) -1.13 -3.3 -1.13 -3.3

Domestic sales (mill.cig.) 5,300 1.0 5,900 1.0 Cigarette revenue (miil.S) -460 -3.0 -500 -3.0

Tax and Consumerb Fed. Excise Tax Rev. (mill.$) 45 1.0 50 1.0 Consumer Surplus (miil.S) 600 660

Health3 Medical costs (miil.S) 450 570 1.0 Life-years (PV yrs.) -211,000 -265,000

Employment

Tobacco Sector (FT equiv.jobs) -4,900 -5,300 r

Cigarette Sector (FT equiv.jobs) -900 -980 < -4.0

Other (FT equiv.jobs) 160 180 I

(a) All fire impacts (10-year period) and health impacts (lifetime) are given in present values at a 5% discount rate; fire loss savings assume a 75 percent reduction in the probability of ignition.

(b) Reported for one year only (the first year impact occurs).

are given assuming a four-year delay prior to implementation. In the second two columns, results are given assuming

immediate implementation. First the estimated amount of impact is given, and then the percentage change.

Looking first at the section on fire loss impacts, we can

see from the first column the estimated positive effects, discounted at an annual compound rate of 5 percent. If this design modification made cigarettes 75 percent less likely to cause fires, an estimated 4,200 lives would be saved over

the study period from 1986 to 1995. This number of saved

lives is estimated to be equivalent to a gain in total life expectancy of 57,700 years, taking into account the ages of

fire victims and current life expectancy at different ages.

Injuries avoided are projected to total 19,600 over the study

period. Present value property loss avoided over the 10- year period is estimated at $1.3 billion. Looking next at tobacco farming impacts, we can see

from the first two columns that the decrease in cigarette

circumference is expected to have a negative effect on this sector. The design modification is predicted to cause

tobacco price to fall 5 percent, which is a decrease of $0.08

per pound of leaf tobacco, assuming an average pre- modification price of $1.50 per pound. Price is estimated to

fall because of the reduced demand for tobacco resulting

from lower tobacco content per cigarette. Even though the lower price of cigarettes is expected to increase cigarette

35
Table 5.12 Impacts of Increasing the Percentage of Expanded Tobacco from 25

to 50 Percent: Summary

"

Four-Year Grace Period Immediate 1 mplementation

Change in Change in Change in Change in Impacts Amount Percent Amount Percent

First-Order Impacts

Firea Lives saved OR 4,300 75.0 8,500 75.0

Life-years gained 57,800 75.0 115,000 75.0

Injuries avoided 19,600 75.0 38,600 75.0

Property loss avoided (mill.$) 1,300 75.0 2,500 75.0

Second-Order Impacts

Tobacco Farmingb Tobacco price ($/lb.) -0.04 -2.7 -0.04 -2.7

Domestic sales (mill. lbs.) -80 -9.6 -90 -9.6

Tobacco revenue (mill.S) -130 -6.2 -140 -6.2

Cigarette lndustryb Cigarette price ($/1000) -0.49 -2.7 -0.04 -2.7

Domestic sales (mill.cig.) 2,300 0.4 2,500 0.4 Cigarette revenue (mill.S) -190 -1.3 -210 -1.3

Tax and Consumerb Fed. Excise Tax Rev. (mill.S) 20 0.4 20 0.4 Consumer Surplus (mill.S) 260 290

Health3 Medical costs (mill.S) 200 250

Life-years (PV yrs.) 91,000 115,000

Employmentb

Tobacco Sector (FT equiv.jobs) -1,700 -1,900 f

Cigarette Sector (FT equiv.jobs) 320 350 -10

Other (FT equiv.jobs) 180 200 I

(a) All fire impacts (10-year period) and health impacts (lifetime) are given in present values at a 5% discount rate; fire loss savings assume a 75 percent reduction in the probability of ignition.

(b) Reported for one year only (the first year impact occurs).

sales (as may be seen from the next section on cigarette

industry impacts), tobacco sales are estimated to fall by

nearly 25 percent, an estimated decline of 190 million pounds of tobacco leaf in 1990, the first year the modification is assumed to occur. As a result of the lower price and

lower sales, annual tobacco revenue is estimated to decline

$300 million, a reduction of about 15 percent.

The next section of the table shows cigarette industry

impacts to be mixed. The lower production costs are esti- mated to cause the cigarette price to fall about 3 percent, or $1.13 per 1000 cigarettes. The lower price is expected to stimulate a 1 percent increase in cigarette sales, which

annually would amount to over 5 billion cigarettes. Despite

the forecast of higher sales, industry revenue is estimated to decline by 3 percent or $460 million per year due to the lower price.

Impacts on federal excise tax revenue and consumer

satisfaction, summarized in the next section, are both esti- mated to be positive. Because the federal excise tax rate is levied as a function of the quantity of cigarettes sold rather than price, federal excise tax revenue is estimated to rise as a result of the decrease in cigarette circumference. An esti- mated 1 percent increase means $45 million extra in annual

excise tax revenue. The fall in cigarette price is estimated to generate an annual increase in consumers' surplus of $600

million, by increasing the difference between what

36
Table 5.13 Impacts of Adding Chemical to Tobacco Blend: Summary

Four-Year Grace Period Immediate I mplementation

Change in Change in Change in Change in Impacts Amount Percent Amount Percent

First-Order Impacts

Firea Lives saved OR 4,300 75.0 8,500 75.0

Life-years gained 58,000 75.0 115,000 75.0

Injuries avoided 19,700 75.0 38,700 75.0

Property loss avoided (mill.S) 1,300 75.0 2,500 75.0

Second-Order Impacts

Tobacco Farmingb Tobacco price ($/lb.) -0.1 -0.1

Domestic sales (mill. lbs.) -3 -0.4 -4 -0.4

Tobacco revenue (mill.$) -5 -0.3 -6 -0.3

Cigarette lndustryb

Cigarette price ($/1000) 0.65 1.9 0.65 1.9 Domestic sales (mill.cig.) -3,100 -0.6 -3,400 -0.6

Cigarette revenue (mill.S) 270 1.8 290 1.8

Tax and Consumed

Fed. Excise Tax Rev. (mill.S) -25 -0.6 -30 -0.6

Consumer Surplus (mill.S) -350 -380

Health3 Medical costs (mill.S) -240 -300

Life-years (PV yrs.) 135,000 170,000

Employmentb

Tobacco Sector (FT equiv.jobs) -60 -70 r

Cigarette Sector (FT equiv.jobs) -200 -230 o Other (FT equiv.jobs) -170 -180 L

(a) All fire impacts (10-year period) and health impacts (lifetime) are given in present values at a 5% discount rate; fire loss savings assume a 75 percent reduction in the probability of ignition.

(b) Reported for one year only (the first year impact occurs).

consumers are willing to pay for cigarettes and what they

would be required to pay. This result assumes that the

quality of the cigarette is unchanged.

The summary of health effects shows two undesirable

impacts. Increased cigarette consumption is estimated to

raise medical care costs by $450 million in present value

terms, taking into account lifetime medical costs of all people expected to be affected over the 10-year period

1986 to 1995 Increased disease and illness are estimated

to reduce total life expectancy over 200 thousand years, taking into account all smokers expected to be affected over

the study period and adjusting for a 5 percent time prefer- ence. (It should be noted, however, that possible desirable

health effects of decreased levels of tar, nicotine, and CO

per puff are not taken into account in these results.) Negative employment impacts are predicted in both the tobacco and cigarette sectors due to the large reductions in tobacco requirements. In the tobacco farm sector, the equivalent of about 5,000 full-time jobs are estimated to be

lost, about 14 percent of tobacco farming jobs, but a

negligible change in terms of total national employment.

Since many farm workers are employed part time in tobacco growing, the number of workers affected is likely to be larger than 5,000. A small overall gam of 160 full-time equivalent jobs is forecast in the other sectors, including

retail and wholesale trade and supporting industries, due to the projected increase in cigarette sales. The above results are based on the assumption that

37
Table 5.14 Impacts of Increasing Cigarette Paper Weight from 24 to 32 Grams

per Square Meter: Summary

"

Four-Year Grace Period Immediate Implementation

Change in Change in Change in Change in Impacts Amount Percent Amount Percent

First-Order Impacts

Fire3 Lives saved OR 4,300 75.0 8,500 75.0

Life-years gained 58,000 75.0 115,000 75.0

Injuries avoided 19,700 75.0 38,700 75.0

Property loss avoided (mill.S) 1,300 75.0 2,500 75.0

Second-Order Impacts

Tobacco Farmingb Tobacco price ($/lb.) 0.1 Domestic sales (mill. lbs.) -1 -0.1 -1 -0.1

Tobacco revenue (mill.S) -1 -0.1 -1 -0.1

Cigarette lndustryb Cigarette price ($/1000) 0.16 0.5 0.16 0.5 Domestic sales (mill.cig.) -750 -1.0 -820 -0.1

Cigarette revenue (mill.S) 65 0.4 70 0.4

Tax and Consumerb Fed. Excise Tax Rev. (mill.S) -6 -0.1 -7 -0.1

Consumer Surplus (mill.S) -85 -90

Health3 Medical costs (mill.S) -60 -75

Life-years (PV yrs.) 32,600 41,000

Employmentb

Tobacco Sector (FT equiv.jobs) -15 -15 r

Cigarette Sector (FT equiv.jobs) 5 5 Other (FT equiv.jobs) 390 425 I

(a) All fire impacts (10-year period) and health impacts (lifetime) are given in present values at a 5% discount rate; fire loss savings assume a 75 percent reduction in the probability of ignition.

(b) Reported for one year only (the first year impact occurs).

consumers like the modified cigarettes just as well as

existing cigarettes, that is, that there is no change in demand. If consumer demand for the modified cigarettes were lower than for existing cigarettes, due, for example, to a less pleasing taste, fire loss savings would be slightly

higher. Tobacco farming impacts would be somewhat more

negative due to a further reduction in the derived demand

for tobacco. Cigarette industry effects would also be negative. Reduced smoking due to the lower demand would

lower present value medical costs and increase life expectancy. The generally negative employment impacts of the

modification would worsen. The last two columns of the table show the results

assuming immediate implementation of the modification. As

would be expected, fire loss savings are greater than with the delayed implementation because savings are tallied over more years of the 10-year study period. For similar reasons,

health impacts are greater. The other impacts differ only to the extent the baseline data for 1986 are larger in value

than those for 1990.

5.3.2 Increased Use of Expanded Tobacco

As was shown in table 5.2, increased use of expanded

tobacco- like decreased cigarette circumference— is esti38
Table 5.15 Impacts of Decreasing Paper Porosity from 35 to 10 Coresta Units:

Summary

m

Four-Year Grace Period Immediate Implementation

Change in Change in Change in Change in Impacts Amount Percent Amount Percent

First-Order Impacts

Firea

Lives saved OR 4,300 75.0 8,500 75.0

Life-years gained 57,900 75.0 115,000 75.0

Injuries avoided 19,600 75.0 38,700 75.0

Property loss avoided (mill.S) 1,300 75.0 2,500 75.0

Second-Order Impacts

Tobacco Farmingb Tobacco price ($/lb.) Domestic sales (mill. lbs.) Tobacco revenue (mill.S)

Cigarette lndustryb Cigarette price (S/1000)

Domestic sales (mill.cig.) Cigarette revenue (mill.S)

Tax and Consumed

Fed. Excise Tax Rev. (mill.S) Consumer Surplus (mill.S)

Health3 Medical costs (mill.S) Life-years (PV yrs.)

Employment

Tobacco Sector (FT equiv.jobs) f

Cigarette Sector (FT equiv.jobs) o

Other (FT equiv.jobs) I

(a) All fire impacts (10-year period) and health impacts (lifetime) are given in present values at a 5% discount rate: fire loss savings assume a 75 percent reduction in the probability of ignition.

(b) Reported for one year only (the first year impact occurs).

mated to reduce the costs of producing cigarettes. An

increase in the percent of expanded tobacco in the blend

from 25 percent to 50 percent is estimated to reduce

domestic tobacco content of cigarettes by 12.73 percent.

Other costs, which include imported tobacco, are estimated

to decline on net by 0.58 percent. Overall the decrease in production cost is estimated at about 1 percent.

Table 5.12 summarizes the results of two case analyses

for this modification. (See appendix tables C.7 through C.12

for more detailed results.) Impacts are comparable to those

for decreased cigarette circumference. Taking the case of unchanged demand, there are positive fire loss savings;

negative tobacco farm impacts; mixed cigarette industry

impacts; positive tax and consumer impacts; undesirable

health impacts (ignoring possible effects of reduced tar. nicotine, and CO content); and employment impacts that are mixed among sectors, but negative overall. Fire loss impacts

tend to be slightly larger than those for decreased cigarette

circumference because the secondary consumption effect is smaller in this case. Other impacts tend to be somewhat

smaller for this modification than for the previous one for the same reason.

39
5.3.3 Chemical Additive to Tobacco Blend

Table 5.2 shows an increase in "other costs" of 2.83 percent

due to adding chemical to the tobacco blend. No other cost changes are indicated. This amounts to an increase in total production costs of about 2 percent.

Table 5.13 summarizes results for this modification. (See

appendix tables C.13 through C.18 for more detailed

results.) The positive impacts on fire losses are estimated at essentially the same amounts as for the previous two modifi- cations, because the same percentage change in ignition

propensity is assumed. In contrast to the previous two

modifications, this one is estimated to have positive health impacts. Health impacts are estimated to be positive as a

result of the secondary effect of higher production costs to reduce cigarette consumption. (Possible adverse health

effects associated directly with the chemical additive are not taken into account.) Due to the inelasticity of the demand for cigarettes, manufacturers' revenue is estimated to rise slightly due to the higher price of cigarettes, even though

sales are estimated to be somewhat lower. Tobacco farmers

are expected to be affected only slightly, ignoring possible

adverse effects on cigarette demand.

5.3.4 Increased Paper Weight

Table 5.2 reports that the increase in paper weight from 24

to 32 grams per sguare meter is expected to increase

paper costs by an estimated 48.2 percent and other costs by 0.3 percent. While this is a sizable increase in paper

costs, it amounts to about a 1 percent increase in total cigarette costs. Table 5.14 summarizes the estimates of economic impact.

(See appendix tables C.19 through C.24 for more detailed

results.) As in the preceding cases, fire loss impacts are based on a 75 percent reduction in ignition propensity, and

therefore, the amounts are about the same as before. Like the chemical additive, this modification is estimated to have

positive health impacts due to a price-induced reduction in cigarette consumption. (However, possible negative health consequences associated with heavier paper are not taken

into account.) Also like the chemical additive, this modification is expected to entail negligible change in tobacco

content, and hence negligible impact on the farm sector, ignoring possible adverse effects on cigarette demand.

Impacts on the cigarette industry, federal excise tax revenue, consumer satisfaction, and employment impacts

are also estimated to be quite small, because the cost change is relatively small.

5.3.5 Decreased Paper Porosity

A decrease in paper porosity from 35 to 10 Coresta is esti- mated to entail an insignificant change in the overall price of cigarette paper, since minor positive and negative changes

in manufacturing and material costs would largely offset each other. The analysis therefore assumes no change in paper costs and no change in tobacco or other manufacturing costs for this modification. Table 5.15 summarizes the estimates of economic impact.

(See appendix tables C.25 through C.30 for more detailed

results.) As in the preceding cases, the change in fire igni- tion propensity is shown for a 75 percent reduction,

resulting in fire loss savings comparable to those shown in the other summary tables. There are no measurable impacts

other than fire impacts due to the decrease in paper

porosity, ignoring possible changes in cigarette demand.

5.4 Sensitivity of Results to Key

Assumptions

The results presented in section 5.3 are based on a complex set of data and assumptions which may be considered "best guess" values, in the sense that care was taken

to select from available values those that appeared to be

most appropriate. However, it is important to note that there are considerable uncertainties associated with many of the

values, and that different results would be obtained with the use of different values. The purpose of this section is to examine the sensitivity of results to alternative values of data

and assumptions in order to test their impact on outcome. The sensitivity analysis focuses on the following five areas:

(1) Time required for implementation of the design modification;

(2) Length of the study period;

(3) Value of the discount rate;

(4) Shifts in demand for cigarettes; and

(5) Change in the tar, nicotine, and carbon monoxide

content of cigarettes.

5.4.1 Time Required (Grace Period) for Implementing

the Design Modification

A delay in implementing a public policy is often allowed to

facilitate the necessary transition. The typical advantage of a delay is easier (lower cost) compliance, and the disadvantage, a delay in obtaining the desired effect. The purpose of this discussion is to compare the esti- mated impacts associated with two alternative implementation requirements:

(1) A four-year delay, and

(2) No delay.

While the cost data collected in the supporting study of industry cost data showed no significant difference between

costs with and without the delay, this was predicated on the hypothesis that each modification could be done within the

specified time. It was pointed out in the supporting study

that in the case of several of the design modifications,

40
notably increased use of expanded tobacco and increased

paper weight, the assumption of immediate implementation

appears technically infeasible, due to the lack of necessary

industrial capacity. The results based on immediate

implementation for those cases should therefore be

regarded only as a reference point.

In the case of fire-loss savings, delayed implementation means smaller total fire-loss savings over time as potential

savings during the period of delay are foregone. The higher

the time preference (as indicated by the value of the discount rate), the larger the estimated loss in benefits due

to the time delay. The estimated effect of a four-year delay on fire-loss impacts may be seen by comparing impacts

shown in the first two columns (delayed implementation) of tables 5.11 through 5.15 with those shown in the second

two columns (immediate implementation). With the 5 percent

discount rate used in computing those results, a delay of 4 years cuts estimated present value fire-loss impacts for 1986-1995 almost in half. Without discounting (0 discount

rate as shown in tables C.1 - C.30), a four-year delay

reduces these impacts by about 45 percent.

A four-year delay in implementation is shown to have a much smaller effect on estimated health impacts than on

fire-loss impacts. With the 5 percent discount rate used in computing the results shown in tables 5.11 through 5.15, a

delay of four years reduces health impacts (positive or negative) by roughly 25 percent. The smaller effect reflects the way health impacts are measured. They are measured

as the modification-induced change in lifetime medical costs and in life expectancy of all people who are estimated to be

affected within the 10-year study period. The modification- induced change is assumed to be a one-time event, brought about by a one-time change in smoking, rather than

a recurring effect. The main effect of the implementation

delay is, therefore, to lag the time until the change occurs; it has little effect on the absolute size of the change.

Delaying implementation is estimated to reduce farming

impacts, cigarette industry impacts, and tax and consumer

impacts. Because these are estimated as annual impacts,

delaying implementation for four years will mean foregoing

these impacts for four years.

5.4.2 Length of the Study Period

At the beginning of this study, it was hypothesized that the smoking-related fire problem might be declining rapidly over

time due to declines in smoking and increases in the use of

fire-resistant materials and fire mitigation technologies. It was

hypothesized that a study period as long as 10 years might

capture most of the fire-loss savings, and a 10-year study

period was adopted for assessing fire-loss impacts.

The results of the impact analysis appear to be more

sensitive to the length of the study period than was

expected. Estimated annual fire-loss savings are projected

to decline at a rate of only several percentage points each

year.

In the case of lives saved, for example, the rate of decline

results in approximately a 25 percent decline between 1986

and 1995. This means that significant fire-loss savings could

be expected past the 10-year study period, and suggests

that the present value estimates of these effects taken over

10 years are understatements of the total long-run fire-loss impacts. In the case of health impacts, the results appear

relatively insensitive to the length of the study period. This is because the health effects are induced by a one-time

change, but measured as life-time amounts. People aged 35

and over at the time the modification occurs, who change

their behavior as a consequence, are assumed to be

affected. People under the age of 35 are assumed to be

affected by the change only if they reach the age of 35

within the designated 10-year study period. (This assumption

is made because the health data base used in the study

assigns health costs only to smokers aged 35 and over.) A

10-year study period means that health effects will be

attributed to people down to the age of 25 (since they reach

the age of 35 within the study period and incur health

effects in the year they become 35). Extending the study

period would include additional people below the age of 25,

and, therefore, increase health impacts. Because the price

elasticity of demand for 12- to 24-year-olds is larger than

that for 25- to 79-year-olds, the change in cigarette

consumption for 12- to 24-year-olds during their younger

years is likely to be higher. However, since health impacts

associated with changed cigarette consumption occur at a

later date, discounting would reduce their significance.

Therefore, a 10-year study period is probably sufficiently

long to capture most of the health impacts.

Farming, cigarette industry, and tax and consumer

impacts are expected to recur, at least in the short run. In the long run, there may be some decline in farming and

cigarette industry impacts as unemployed resources are deployed to other uses. It should be noted that these

impacts are shown in the tables for one year only, not over a 10-year study period.

5.4.3 Value of the Discount Rate

Impact estimates tend to be sensitive to the value of the discount rate because it lowers the relative weight of future values. The higher the discount rate, the lower the present

value equivalent of a future amount, and vice versa. Thus,

the higher the discount rate, the lower the present value of future fire-loss and lifetime health impacts.

The sensitivity of the results to the discount rate can be

seen in appendix C tables by comparing the analysis results based on a 5 percent discount rate with those based on a percent discount rate (the latter being the equivalent of no

discounting) for fire-loss impacts and health impacts. Table

C.1 shows present value fire-loss impacts to be about 30

percent lower based on a 5 percent discount rate than on a percent rate. Table C.1 shows present value health impacts to be nearly 80 percent lower based on a 5 percent

discount rate than on a percent rate. Health impacts are more sensitive to the discount rate than are fire-loss impacts

because the discount rate is used in cevelopmg the data

base of lifetime health effects associated with smoking, as

well as in computing the present value of health effects distributed over the 10-year study period.

41
5.4.4 Change in the Demand for Modified Cigarettes

The case analyses in appendix C were performed under the

following three conditions of demand for modified cigarettes:

(1) No change in demand;

(2) A 5 percent decrease in demand (e.g., due to an

undesirable taste change); and

(3) A 5 percent increase in demand (e.g., due to an improvement in cigarette taste, or an increase in consumption to compensate for a decline in nicotine content per cigarette).

Note that these alternative assumptions about demand are

all purely hypothetical in that no measurement of the predicted change in demand for the five modifications of cigarette design was performed. The comparative results, however, indicate the sensitivity of the various impact cate- gories to shifts in demand.

Consider first the sensitivity of results to a 5 percent

decline in demand for cigarettes. The analyses showed that a decrease in the demand for modified cigarettes tends to increase fire-loss savings, increase farm losses, reduce cigarette sales and industry revenue, reduce federal excise tax revenue, reduce consumers' surplus, reduce medical costs and increase life-expectancy, and decrease employment.

Percentage changes in the various impact categories for decreased circumference cigarettes, associated with a 5

percent decrease in demand, are as follows: fire-loss savings increase by a matching 5 percent; losses in tobacco farm sales and revenue are about 10 percent

greater; the estimated small increase in cigarette sales is reversed, and industry revenue losses increase by more

than 200 percent; the small gam in federal excise tax revenue is reversed and becomes a loss; the gain in consumers' surplus is also reversed; the increase in medical

costs is reversed and a decline results; the decline in life years changes to a gain; tobacco-related employment

declines further. Now consider the effect of an increase in demand of 5

percent. The analyses show that an increase in the demand

for cigarettes due to the modification tends to decrease fire loss savings, decrease farm losses, increase cigarette sales and industry revenue, increase federal excise tax revenue,

increase consumers' surplus, increase medical costs and

decrease life expectancy, and offset employment losses. In magnitude, the impacts are about the same as those

described for a decrease in demand; but, of course, the

direction of change is reversed.

It may be concluded that the impact categories which are

particularly sensitive to the assumption about demand for cigarettes are cigarette industry impacts, tax and consumer

impacts, health impacts, and employment impacts. Fire-loss impacts and farm impacts are much less sensitive.

5.4.5 Change in Tar, Nicotine, and Carbon Monoxide

Content of Modified Cigarettes

A factor of critical importance is the potential health impacts

which may result from changing the chemical content of cigarettes as a side effect of changing their design. A

change in chemical potency would affect all modified

cigarettes. Hence, the size of the impact could easily be

many times larger than health changes resulting from

changes in consumption levels of constant-potency

cigarettes, the only health impact included in the preceding

analyses. For example, a percentage change in cigarette

potency of approximately 10 percent that translated into a

similar percentage change in health-risk exposure, would

completely overwhelm health impacts resulting from a 1 percent change in production costs (holding potency

constant).

Insufficient data precluded estimating health impacts from

changes in chemical potency for the five hypothetical modifi- cations. Tests with sample data, however, demonstrated the

potential importance of this impact. Furthermore, the model

has the capability of estimating the effect if sufficient data were available.

5.5 Summary

Thirty different economic impact analyses, plus sensitivity

testing, were performed to assess what could be learned

about the likely effects of reducing the ignition propensity of cigarettes. The analyses were based on five hypothetical

design modifications: tobacco blend, chemical additives,

cigarette size, and paper weight and porosity. Impacts

investigated included first-order impacts — savings from

having fewer cigarette fires -as well as seven potential

second-order impacts. Second-order impacts may result if something other than cigarette ignition propensity is changed. Other changes might occur in the mix or quantity

of raw materials, labor, and/or production processes for manufacturing cigarettes; the cost of producing cigarettes;

and cigarette attributes such as taste, appearance, handling

characteristics, and chemical potency. Second-order

impacts, whether or not intended, may have an important

bearing on the outcome of an effort to improve fire safety,

and, therefore, should be taken into account in policy

development.

First, economic theory was applied to the problem to

identify potential areas of major concern. Second, an economic impact model was developed to enable quantitative estimation of those first- and second-order impacts

which were expected to be most significant. Third, assumptions were made and data were compiled or drawn from

supporting data studies for use in the economic impact

model. Fourth, the model was exercised with the data and

assumptions to generate results. Fifth, the results were

analyzed.

Despite uncertainties introduced into the analysis by the need to make a number of assumptions and to use data to which varying levels of confidence can be attached, the

42
analysis yielded findings with important implications for deci- sion making.

The potential direct benefit from eliminating the cigarette

fire loss problem was found to be substantial: a savings

potential each year of more than 1 500 lives now lost to cigarette fires, roughly 7000 fire-related injuries, and close to

half a billion dollars of property damage. Although it was

initially hypothesized that this savings potential would fall dramatically over the next 10 years, this hypothesis was not supported by findings. It was projected that 10 years from now the potential for saving lives and avoiding injury will be

about 75 percent as large as now, and that the potential for averting property damage will be about 90 percent as large.

In the absence of specific ignition performance data for the hypothesized design modifications, the direct potential

fire loss impacts are estimated by applying 25, 50 and 75

percent reduction rates. The resulting benchmarks of fire damage reductions can be used for comparing

performance-based results when they become available. The quantitative analysis of second-order impacts focused on those estimated to result from changes in the factors of production and costs of manufacturing cigarettes.

• If it is assumed that the supply price of cigarettes fully reflects changes in production costs -and if consumer demand and cigarette potency are held constant

second-order impacts are estimated to be relatively small

in percentage terms for the five modifications.

• The estimated changes in production costs which drive the secondary impacts range between -3 and +2

percent.

• The largest percentage sector changes are estimated for tobacco farming and tobacco industry employment for those modifications which entail a reduction in tobacco

content. For example, tobacco farm revenue is estimated

to fall by 15 percent and jobs in tobacco-related industries by 4 percent in response to a decrease in cigarette

circumference. Furthermore, these impacts are likely to be concentrated regionally.

decreased circumference cigarette, to a 2 percent

increase for a chemical additive.

• Smokers are assumed to benefit (gain in consumers'

surplus) from a modification which lowers cigarette prices

below what prices otherwise would have been, and

vice-versa.

It is important to note, however, that changes in consumer demand and changes in chemical potency are two additional sources of potential secondary impact not accounted

for by the cost-driven changes discussed above.

• Analyses were performed of the impact of hypothetical

demand shifts, and the effect of a given shift can be

described: A modification which results in an increase in demand for cigarettes can be expected to have positive

impact on the farm sector, the cigarette industry, excise

taxes, and employment; and negative health impacts.

However, there is little basis for specifying shifts in demand for these modifications.

• Use of the impact model with hypothetical changes in cigarette potency demonstrated large potential effects on secondary health impacts.

Including potential secondary impacts of cigarette modifi- cation in the study is not to diminish or obfuscate the objective of fire safety. To make sound decisions regarding fire safety requires as full an understanding as possible of the consequences of alternative actions. This understanding

may allow undesirable consequences of actions to be

avoided, overcome, or neutralized. For example, it may be

possible to choose cigarette design modifications with fewer

secondary impacts, or to use tax policy, statute, and technological innovation to neutralize unwanted side effects.

Cost-driven health impacts, though estimated at no more

than a one percent increase in smoking-related medical

costs, appear large in absolute dollars. This is because

they are taken as a percentage change in lifetime incidence-based medical costs and this base is a very

large number. (In contrast, some of the impacts are esti- mated for one year only, or for a 10-year period only.)

Cost-driven health impacts are positive for modifications

which are estimated to increase production costs and

thereby decrease cigarette consumption, and vice-versa.

Excise revenue impacts are estimated to be small — no more than a 1 percent change ($50 million per year) —

and represent transfer payments between sectors of the economy.

Cigarette industry impacts are also estimated to be small,

ranging from a 3 percent decrease in revenue for a

43

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1981. Sumner, Daniel A. and Wohlgenant, Michael K. An

Economic Analysis of the 1983 Increase in the Federal

Excise Tax on Cigarettes. Economics Research Report

No. 44. Department of Economics and Business.

Raleigh, NC: North Carolina State University. 1983. Sumner, Daniel A., and Wohlgenant, Michael K. "Effects of an Increase in the Federal Excise Tax on

Cigarettes." American Journal of Agricultural

Economics, vol. 67 no. 2. May 1985. Thompson, Mark S. Benefit-Cost Analysis for Program

Evaluation. Beverly Hills. CA: Sage Publications. 1980. The Tobacco Institute. The Tax Burden on Tobacco:

Historical Compilation, vol. 21 (1986), (Washington DC:

The Tobacco Institute), p. 204. US Department of Agriculture. Economic Research

Service. Tobacco Outlook and Situation Report. TS-191. 1985.

45
[24] U.S. Department of Commerce. Bureau of the Census. [28] Current Population Reports, Series P-25, Nos. 917, 952,

985.

[25] U.S. Department of Commerce. Bureau of Industrial [29] Economics. 1985 Industrial Outlook. Sec. 43, "Tobacco."

[26] U.S. Department of Health and Human Services. Public Health Service. National Center for Health

Statistics. Provisional Data from the Health Promotion

and Disease Prevention Supplement to the National

Health Interview Survey: United States, January-March [30] 1985. Hyattsville, MD, November 1985

[27] U.S. Department of Health and Human Services. Office

of the Surgeon General. "Remarks by C. Everett Koop,

M.D, Surgeon General, at Press Conference Releasing [31] the 1986 Surgeon General's Report on The Health

Consequences of Involuntary Smoking," Press Release,

December 16, 1986.

U.S. Department of Health and Human Services. Office

of the Surgeon General. The Surgeon General's

Reports, 1982, 1983, 1984, 1986. Warner, Kenneth, E. "Consumption Impacts of a Change in the Federal Excise Tax." The Cigarette

Excise Tax: April 17, 1985. Smoking Behavior and

Policy Conference Series. Cambridge, MA: Harvard

University, Institute for the Study of Smoking Behavior

and Policy, 1985, pp. 88-105

Warner, Kenneth E. "The Effects of the Anti-Smoking

Campaign on Cigarette Consumption," American

Journal of Public Health, vol. 67, no. 7, July 1977, pp. 646-650.

Weinstein, Milton C and Stasson, William B. "Foundations of Cost-Effectiveness Analysis for Health and

Medical Practices." The New England Journal of Medicine, March 31, 1977.

46
Appendix A

Derivation of the Solution Equations for the

Supply and Demand Equilibrium Model

Ther system of the nine equations that comprise the supply

and demand equilibrium model presented in Table 4.1 of section 4 can be solved using the method of substitution. The objective is to express at least one of the endogenous

variables in explicit form independent of the other endogenous variables, the endogenous variable that represents the key to this system of equations turns out to be IPtd, the domestic price of tobacco. The explicit solution

for this variable is derived in the following seven steps.

1. Start with Eq (8):

(8) EQ t - B td EQ td + (1 " B td )EQ te .

2. Use Eqs (6) and (7) for EQ td and EQ ce , respectively:

EQt " <W- "tdEPtd + EQc Ftd + EUtd) " 1 t e< 1 " 6 td> Ep td3. Use Eqs (1) and (2) substituted into (3) to replace EQC

:

EQt " " B t dntdEPtd + 8 c df

r td[8cd<- n c d Epcd + EDCd> +

(1 " BcdH-HceEPce + EDce ) + Eu"td) " n te (l - B t d>EP td4. Use Eqs (A) and (5) to replace EPc<j and EP ce , respectively:

EQt -I" Btdltd ~ 1 t e< 1 " 6td))EP t d + Btd^tdllW-lcdXatdEPtdF,.,] + EC) + B cd EDcd ]

+ HtdPtdd " B cd>(-n ce )Y[atdEPtd(Ftd " »EUtd> + U " 8>ECJ

+ B t df

rtd< 1 " B cd )EDC e + B t dEUtd?td5. Collect terms from Step 4 (especially coefficients of EP td ):

EQt ' EP td |- dtdltd " "ted - Btd) " Htdlcd'lcd^td^td

" B td F td (l - B cd )n ceT .i td (F td - 8EU cd )]

- B t dB c dn c dF t d EC

+ B tdacdEDcd Ftd

" «tdO " 8 cd )n ce*(l - e)Ftd EC

+ [B td (l - B cd )EDce + BtflEUcdlFtd.

6. By defining k as the expression for all the coefficients of EP td , this expression for EQ C can be more simply stated as Eq (10).

(10) EQt - - AEP td + 3 t d-icd(EDcd - n cd EC)F t d

+ B td (l - e cd )[EDC e " n ce Y(l - e)EC]Ftd + 3 td EUt dF cd .

where * - B cda t dFtd (6 cd n cd F cd + (1 - 6 cd )nceT(F,.d - aEU cd )] + 6 td n cd + (1 - a cd )n ce -

7. The first solution equation, that for the domestic price of tobacco, is obtained by equating Eqs. (9) and (10):

cEP td - -*EP cd + B cd B cd (EDcd - n cd EC)F td

+ B td O " B cd )(EDce - n ceT(l " e)EC]Ftd + B cd EUtd Ftd .

(11) EP cd " "F,. dB t d[3 cd(EDc d

- n cd EC) + (1 " B cd )(EDce - n ce T(l - 8)EC)

+ EU td ]/[e + »]•

Eq (11) expresses EP,d, the proportional change in the domestic price of tobacco as an explicit function of only the parameters and and the exogenous variables. It represents a solution because there are no endogenous variables in the function. Because of the structure of the remaining

equations in the model, this solution equation for EP,d represents the solution for the entire system of equations.

That is, EPtd can be substituted into Eq (4) to obtain the

solution for the price of domestic cigarettes, EPcd . Then,

EPcd and EP,d can be used to solve Eq (5) for the price of exported cigarettes. Eqs (1), (2) and (3) can then be solved

for the quantities of cigarettes sold in both markets. The

remaining four equations are solved in a similar fashion. Table 4.5 in section 4 presents the equations used to compute solution values for the endogenous variables.

47

Appendix B

Specification of the Health Impact Model

Case 1. No Lag, Cigarette Consumption Decrease

A. Dollar-Value Health Impacts

Participation Effect, Ages 35-79

9 2 3 H$ ± = WT35_79 x QSP 35_79 x UA/(CPD x NS35-79) x £ £ £ NSa s ± x Q$ a>s>1>i

a=l s=l 1=1

Participation Effect, Ages 25-34

34 2 3 + WT25-34 x QSP 25-34 x UA/(CPD x NS25-34) x I SPW (35_y)>i x £ £ NSa 8

i x S$a=1 s1 ± y=25 s=l 1=1

Consumption Effect, Ages 35-79

9 2 3 + WT35_79 * QSC35_7 9 /NS35-79 x £ £ £ NSa>S(1 x BQ$ a)S>1>i

a=l s=l 1=1

Consumption Effect, Ages 25-34

34 2 3 + WT25-34 * QSC25-34/NS25-34 * I SPW (35_

y) i x I I NSasl x BS$a=lsll

y=25 s=l 1=1

49
(Case 1, Continued)

B. Life-Year Health Impacts

Participation Effect, Ages 35-79

9 2 3

HYi = WT35_79 x QSP35_79 x UA/(CPD x NS35-79) x £ £ £ NS3jS)1 x QYa>s>1>1

a=l s=l 1=1

Participation Effect, Ages 25-34

34 2 3 + WT25-34 x QSP25-34 x UA/(CPD x NS25-34) x I SPW (35 ) i x I £ NSa s ,l x SYa=1 s x ± y=25 s=l 1=1

Consumption Effect, Ages 35-79

9 2 3 + WT35-79 x QSC3 5_79/NS35-79 x I I I NSa>s>1 x BQYa>s>1>1

a=l s=l 1=1

Consumption Effect, Ages 25-34

34 2 3 + WT25-34 x QSC25-34/NS25-34 x £ SPW (35_

y) i x I I NSa s 1 x BSYa=1 s L ± y=25 s=l 1=1

Case 2. No Lag, Cigarette Consumption Increase

A. Dollar-Value Health Impacts

Participation Effect, Ages 35-79

9 2 3 H$i = WT35_79 x QSP35_ 79 x UA/(CPD x ^35.79) x £ £ £ NSa>s>1 x Q$ a>s> i >i

a=l s=l 1=1

Participation Effect, Ages 25-34

34 2 3 + WT25-34 x QSP25-34 x UA/(CPD x*NS25-34) x £ SPW(35_y)>i x [ £ NSa>s>1 x S$ a=1>s>1>i

y=25 s=l 1=1

50
(Case 2, Continued)

Consumption Effect, Ages 35-79

9 2 3 + WT35-79 x QSC3 5_79/NS3 5_79 x[ J' I NSa>s> i x BS$a>s>1 . >i

a=l s=l 1=1

Consumption Effect, Ages 25-34

34 2 3 + WT25-34 x QSC25-34/NS25-34 x I SPW( 35-y) i x I I NSa>s> i x BS$ a=1)S> i« >i

y=25 s=l 1=1

3. Life-Year Health Impacts

Participation Effect, Ages 35-79

9 2 3 HYi = WT35_79 x QSP 35_79 x UA/(CPD x NS35-7 9

) x £ J J NSa>s>1 x QYaf8> i fl

a=l s=l 1=1

Participation Effect, Ages 25-34

34 2 3 + WT25-34 * QSP 25-34 * UA/(CPD x NS25-34) * I SPW (35_y)>i x I I NSa>s>1 x SYa=1 s x ± y=25 s=l 1=1

Consumption Effect, Ages 35-79

9 2 3 + WT35_79 x QSC35_79/NS35_79 x £ £ £ NSa>s>1 x BSYa , Sjl . fi

a=l s=l 1=1

Consumption Effect, Ages 25-34

34 2 3 + WT25-34 * QSC25-34/NS25-34 x I SPW(35_y)>i x I I NSa>s> i x BSYaaslfSjl . fi

y=25 s=l 1=1

51
Case 3. Four-Year Lag, Cigarette Consumption Decrease

A. Dollar-Value Health Impacts

Participation Effect, Ages 35-79

9 2 3 H$i =WT35_79 x SPW4>i x QSP35-79 x UA/(CPD x NS35-79) x £ £ £ NSa>s>1 x Q$ a , s ,l,i

a=l s=l 1=1

Participation Effect, Ages 31-34

34 2 3 +WT31-34 x SPW4>i x QSP25-34 x UA/(CPD x NS31_34 )x J £ I NSa>Sjl x Q$ a=i >s> i >i

y=31 s=l 1=1

Participation Effect, Ages 25-30

30 2 3

+WT25-30 x QSP25-34 * UA/(CPD x NS25-3o) I SPW(35_y)>i £ £ NSa>s>1 x S$ a=1>s>1>i

y=25 s=l 1=1

Consumption Effect, Ages 35-79

9 2 3

+WT35-79 x SPW4>i x QSC3 5_79/NS35_79 x £ £ £ NSa>s>1 x BQ$ ajS>1>i

a=l s=l 1=1

Consumption Effect, Ages 31-34

34 2 3 +WT31 -3 4 x SPW4 i x QSC25-34/NS31-34 * I I I NSa Sf l * BQ$ a=L>S)1)i

y=31 s=l 1-1

Consumption Effect, Ages 25-30

30 2 3 +WT25-30 x QSC25-34/NS25-3O x I spw (35-y),i I I NSa,s,l x B S$a=l,s,l,i

y=25 s=l 1-1

52
(Case 3, Continued)

B. Life-Year Health Impacts

Participation Effect, Ages 35-79

9 2 3 HYi =WT35_79 x SPW4>i x QSP35_79 x UA/(CPD x ^35.79) x )" )" £ NSa s

1 x QYa)S)1>i

a=l s=l 1=1

Participation Effect, Ages 31-34

34 2 3 +WT31-34 x SPW4>i x QSP25-34 x UA/(CPD x NS31 -3 4 )x £ £ £ NSa>s>1 x QYa=1 s

1 4 y=31 s=l 1=1

Participation Effect, Ages 25-30

30 2 3 +WT25-30 x QSP25-34 x UA/(CPD x NS25-3o) I SPW

( 3 5_y)>i £ £ NSa>s>1 x SYa=1>s>1>i

y=25 s=l 1=1

Consumption Effect, Ages 35-79

9 2 3

+WT35_79 x SPWA i x QSC35_79/NS35_79 x £ £ £ NSa s 1 x BQYa s X ± a=L s=l 1=1

Consumption Effect, Ages 31-34

34 2 3

+WT31-34 x SPW4 i x QSC2 5-34/NS31-34 x )", J" £ NSa s 1 x BQYa=1 s x ± y=31 s=l 1=1

Consumption Effect, Ages 25-30

30 2 3

+WT25-30 x QSC25-34/NS25-3O x y SPW (35_

y) ± y y NSa>s>1 x BSYa=1>S)1>i

y=25 s=l 1=1

53
Case 4. Four Year Lag, Cigarette Consumption Increase

A. Dollar-Value Health Impacts

Participation Effect, Ages 35-79

9 2 3 H$i =WT35_79 x SPW4 i x QSP35_79 x UA/(CPD x ^35.79) x £ £ £ NSa s

i x Q$ a ,s,l,i

a=l s=l 1=1

Participation Effect, Ages 31-34

34 2 3

+WT31-34 x SPWA i x QSP25-34 * UA/(CPD x NS31 _34 )x £ £ £ NSa s X x Q$ a=i o i fl

y=31 s=l 1=1

Participation Effect, Ages 25-30

30 2 3

+WT25-30 * QSP25-34 x UA/(CPD x NS25-30) I SPW (35_

y) ± £ £ NSa s x x S$ a=1 s

1 ± y=25 s=l 1=1

Consumption Effect, Ages 35-79

9 2 3 +WT3 5_79 x SPW4 ± x QSC35-79/NS35-79 x £ £ £ NSa s x x BS$ a s !« ± a=l s=l 1=1

Consumption Effect, Ages 31-34

34 2 3 -WT31_34 x SPW4 i x QSC25-34/NS31-34 X I I I NSa s i x BS$a=1 s V ± y=31 s=l 1=1

Consumption Effect, Ages 25-30

30 2 3 +WT25-30 * QSC25-34/NS25-3O x I SPW (3 5-y)>i £ £ NSa>s>1 x BS$a»! e V ± y=25 s=l 1=1

54
(Case 4, Continued)

B. Life-Year Health Impacts

Participation Effect, Ages 35-79

9 2 3 HYi -WT35_79 x SPW4 i x QSP 35_79 x UA/(CPD x NS3 5_79 ) x j £ 1 NSa,s,l x QYa, S) l,i

a=l s=l 1=1

Participation Effect, Ages 31-34

34 2 3 +WT31-34 x SPW4 i x QSP25-34 * UA/(CPD x NS31 _34 )x J J £ NSa 8 1 x QYa=1 s

1 * y=31 s=l 1=1

Participation Effect, Ages 25-30

30 2 3

+WT25-30 x QSP25-34 x UA/(CPD x NS25-30) I SPWos-y)!! J J NSa>s>1 x SYa=1>s x ± y=25 s=l 1=1

Consumption Effect, Ages 35-79

9 2 3

+WT35-79 x SPW4>i x QSC 3 5_79/NS3 5_7 9 x £ £ £ NSa>s>1 x BSYa>Sfl . fi

a=l s=l 1=1

Consumption Effect, Ages 31-34

34 2 3

+WT31_34 x SPW4 i x QSC25-34/NS31 -34 *l I I NSa 8f l * BSYa=1>s r>i

y=31 s=l 1=1

Consumption Effect, Ages 25-30

30 2 3

+WT25-30 x QSC25-34/NS25-30 x I SPW

( 35-y) i I I NSa s ! x BSYa»! s !• t y=25 s=l 1=1

55
Table B. 1 Notation for Health Impact Model

"

Symt ol Definition

H$i Dollar-value health impacts per cigarette "at risk"

per day, for discount rate i.

HYi Life-year health impacts per cigarette "at risk" per

day, for discount rate i.

WT Weight, by age class, reflecting proportion out of

total cigarettes smoked by 25-79 year-olds that are smoked by that age class.

QSP Quantity share for the participation effect, by age

class

.

QSC Quantity share for the consumption effect, by age

class.

UA Underreporting adjustment for participation effect,

to adjust for fact that smokers smoke more cigarettes

per day than they claim.

CPD Cigarettes per day, an average of average cigarettes

smoked per day by current smokers and recent quitters.

NS25- NS 25. -3A»

-30.

NS 35_79

NS31_34 Number of current smokers, by age class.

a Age group number for ages 35-79, where a=l for 35-39,

a=2 for 40-44,..., a=9 for 75-79.

y Age, in years.

s Sex, where s=l for male and s=2 for female.

1 Smoking level number, where 1=1 for 1-19 cigarettes

per day, 1=2 for 20-39 cigarettes per day, and 1=3

for 40+ cigarettes per day.

NSa , s,l Number of smokers in age group a, sex s, and smoking

level 1.

56
Table B.1 Notation for Health Impact Model

Symbol Definition

Q$a,s,l,i

s ?a,s,l,i

QYa , s

, 1 ,

SYa,s,l,i

SPW(35-y),i

SPW4 ,i

BQ$a,s,l,i

BS$ a ,s,l,i

BQYa> s,l,i

BSYa,s,l,i

1»

Present value lifetime dollar health benefits of

quitting per person in age group a, sex s, smoking

level 1, and at discount rate 1.

Present value lifetime dollar health costs of smoking

per person in age group a, sex s, smoking level 1,

and at discount rate i.

Present value life-year health benefits of quitting

per person in age group a, sex s, smoking level 1,

and at discount rate i.

Present value life-year health costs of smoking per

person in age group a, sex s, smoking level 1, and at

discount rate i.

Single present worth factor, for discounting to the

present values occurring (35-y) or 4 years hence

at discount rate I.

Slope of the dollar-benefit dose-response curve for

quitting for age group a, sex s, smoking level 1, and

discount rate i.

Slope of the dollar-cost dose-response curve for

smoking for age group a, sex s, smoking level 1, and

discount rate i.

Slope of the life-year benefit dose-response curve for

quitting for age group a, sex s, smoking level 1, and

discount rate I.

Slope of the life-year cost dose-response curve for

smoking for age group a, sex s, smoking level 1, and

discount rate i.

Smoking level number, where l'»2 when 1=1, l'=3 when

1=2, and l'-3 when 1=3.

57

Appendix C

Detailed Results of the Impact Analysis

59
Table C.1

Modification: Decrease Circumference from 25 to 21 millimeters Assumptions: Four-year Grace Period, and No Change in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = -29.40 Paper Cost = -16.00 Other Cost = -1.40

Change in Tar and Nicotine (%): 0.0 1

First-Order Impacts:

Fire Impacts:: Lives Saved (or Life Years Gained), Inju

Year 25% Fewer Fires !

ries Avoided,, and Property

50% Fewer Fires

' Losses (Million $) Avoided

75% Fewer Fires

Life Lives Years

Number

Injured

Prop

Loss Lives

Life Number

Years Injured

Prop

Loss Lives

Live

Years

Number Prop

Injured Loss

1986

1987

1988

1989

1990 353 10833

1991 342 10509

1992 333 10210

1993 323 9901

1994 315 9662

1995 305 9369

1614

1574

1535

1494

1460

1415

1 06 720

105 699

103 679

102 658

101 643

99 623

22114

21454

20843

20212

19724

19127

3294

3212

3134

3049

2980

2889

217

214

211

208

205

202

1088

1056

1025

994

970

941

33395

32399

31476

30522

29786

28884

4975 328

4851 323

4733 319

4604 314

4500 310

4363 305

PV Sum (0%): 1971 60483

PV Sum (5%): 1377 18714

9091

6350

616 4023

430 2811

123473

38203

18559

12964

1257

877

6075

4245

186462

57693

28026 1899

19577 1324

Second-Order Impacts:

Tobacco Farming Impacts:

Price of Tobacco

Domestic Tobacco Sales

Export Tobacco Sales

Total Tobacco Revenue

Quota Lease Revenue

Producers' Surplus

Units

$/Lb

Million Lbs

Million Lbs

Million $

Million $

Million $

Absolute Change

-0.08

-195

55

-302

-92

-34

% Change

-5.0

-23.7

10.0

-14.7

-29.8

N.A.

Cigarette Industry Impacts:

Price of Cigarettes

Domestic Cigarettes Sales

Export Cigarettes Sales

Total Cigarette Revenue

(Net of Federal Excise Tax)

UNITS

$/1000

Millions

Millions

Million $

Absolute Change

-1.13

5348

815

-456

% Change

-3.3

1.0

1.4 -3.0

Tax & Consumer Impacts:

Federal Excise Tax Revenue

Consumers' Surplus

Unit

Million $

Million $

Absolute Change

43

605

% Change

1.0 N.A.

Health Impacts:

Discount Rate Change in Medical Costs Change in Expected Life (PV 1986 Million $) (PV Years)

0% 2208 -1068777

5% 456 -211320

Employment Impacts by Sector (Change in Full-Time Eq

2 Sector: Tobacco Cigarette Warehouse

Impact: -4887 -898 -156

uivalent Jobs):

Support

-153

Wholesale

328

Retail TOTAL

142 -5623

60
Table C.2

Modification: Decrease Circumference from 25 to 21 millimeters Assumptions: Four-year Grace Period, and 5.0% Decrease in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = -29.40 Paper Cost = -16.00 Other Cost = Change in Tar and Nicotine (%): 0.0

1.40

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop

Lives Years Injured Loss

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

PV Sum (0%):

PV Sum (5%):

407

395

384

372

363

352

12504

12131

11785

11428

11153

10815

2275 69816

1590 21602

1863

1816

1772

1724

1685

1634

10494

7330

Second-Order Impacts:

Tobacco Farming Impacts:

Price of Tobacco

Domestic Tobacco Sales

Export Tobacco Sales

Total Tobacco Revenue

Quota Lease Revenue

Producers' Surplus

Cigarette Industry Impacts:

Price of Cigarettes

Domestic Cigarettes Sales

Export Cigarettes Sales

Total Cigarette Revenue

(Net of Federal Excise Tax)

Tax & Consumer Impacts:

Federal Excise Tax Revenue

Consumers' Surplus

Health Impacts:

Discount Rate %

5 %

Life Number Prop

Lives Years Injured Loss

Live Number Prop

Lives Years Injured Loss

123

121 119

118

116

114

711

496

757 23228

734 22535

713 21893

692 21230

675 20718

655 20090

4225 129695

2953 40128

3460

3374

3292

3203

3130

3035

228

225

222

218

216

212

19494 1321

13617 921

1106

1073

1043

1011

987

957

6176

4316

33953

32939

32001

31032

30283

29366

189573

58655

5058

4932

4812

4681

4575

4436

333

329

324

319

315

310

Units

$/Lb

lion Lbs

lion Lbs

lion $

lion $

lion $

UNITS

$/1000

lions

lions

lion $

Unit

Million $

Million $

Absolute Change

-0.09

-214

64

-332

-106

-36

Absolute Change

-1.14

-21209

943

-1114

Absolute Change

-170

-901

28494 1930

19904 1346

% Change

-5.8

-26.0

11.6

-16.1

-34.3

N.A. % Change

-3.4

-4.0

1.6 -7.3

% Change

-4.0

N.A.

Change in Medical Costs

(PV 1986 Million $)

-8551

-1648

Change in Expected Life (PV Years)

-4928016

-924229

Employment Impacts by Sector (Change in Full-Time Equivalent Jobs):

2 Sector: Tobacco Cigarette Warehouse Support

Impact: -5265 -3958 -168 -438

Wholesale

-1080

Retail -564TOTAL

- 11747

61
Table C.3

Modification: Decrease Circumference from 25 to 21 millimeters Assumptions: Four-year Grace Period, and 5.0% Increase in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = -29.40 Paper Cost = -16.00 Other Cost = Change in Tar and Nicotine (%): 0.0

1.40

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life Number Prop Live Number Prop

Lives Years Injured Loss Lives Years Injured Loss Lives Years Injured Loss

1986

1987

1988

1989

1990 298 9161 1365 90 684 21000 3128 206 1070 32838 4892 322

1991 290 8888 1331 89 664 20373 3051 203 1038 31858 4770 318

1992 281 8635 1298 88 645 19793 2976 201 1008 30951 4654 314

1993 273 8373 1263 86 625 19193 2895 197 978 30013 4528 309

1994 266 8171 1234 85 610 18730 2830 195 954 29289 4425 305

1995 258 7924 1197 84 592 18163 2743 191 925 28402 4290 299

PV Sum (0%): 1666 51151 7688 521 3820 117251 17623 1194 5974 183351 27559 1867

PV Sum (5%): 1165 15826 5370 363 2669 36278 12310 833 4174 56730 19251 1302

Second-Order Impacts:

Tobacco Farming Impacts:

Price of Tobacco

Domestic Tobacco Sales

Export Tobacco Sales

Total Tobacco Revenue

Quota Lease Revenue

Producers' Surplus

Cigarette Industry Impacts:

Price of Cigarettes

Domestic Cigarettes Sales

Export Cigarettes Sales

Total Cigarette Revenue

(Net of Federal Excise Tax)

Tax & Consumer Impacts:

Federal Excise Tax Revenue

Consumers' Surplus

Units

$/Lb

Million Lbs

Million Lbs

Million $

Million $

Million $

UNITS

$/iooo

Millions

Millions

Million $

Unit

Million $

Million $

Absolute Change

-0.06

-175

46

-272

-78

-31

Absolute Change

-1.12

31905

687

203

Absolute Change

255

2110

% Change

-4.2

-21.3

8.4 -13.2

-25.2

N.A. % Change

-3.3

6.0

1.2

1.3

% Change

6.0 N.A.

Health Impacts:

Discount Rate %

5 %

Change in Medical Costs (PV 1986 Million $)

13172

2722

Change in Expected Life (PV Years) - 6376008

-1260674

Employment Impacts by Sector (Change in Full-Time Equivalent Jobs):

Sector: Tobacco Cigarette Warehouse Support

Impact: -4509 2163 -144 -133

Wholesale

-1736

Retail 848

TOTAL

228

62
Table C.4

Modification: Decrease Circumference from 25 to 21 millimeters Assumptions: Immediate Implementation, and No Change in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = -29.40 Paper Cost = -16.00 Other Cost = -1.40

Change in Tar and Nicotine (°/o): 0.0

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life Number Prop Live Number Prop

Lives Years Injured Loss Lives Years njured Loss Lives Years Injured Loss

1986 402 12341 1814 112 821 25192 3703 228 1239 38044 5593 344

1987 388 11917 1752 110 793 24327 3576 225 1197 36738 5401 339

1988 376 11545 1700 109 768 23569 3470 222 1160 35592 5240 336

1989 365 11210 1660 108 746 22884 3390 220 1126 34558 5119 333

1990 353 1 0833 1614 106 720 22114 3294 217 1088 33395 4975 328

1991 342 10509 1574 105 699 21454 3212 214 1056 32399 4851 323

1992 333 10210 1535 103 679 20843 3134 211 1025 31476 4733 319

1993 323 9901 1494 102 658 20212 3049 208 994 30522 4604 314

1994 315 9662 1460 101 643 19724 2980 205 970 29786 4500 310

1995 305 9369 1415 99 623 19127 2889 202 941 28884 4363 305

PV Sum (0%): 3502 107496 16017 1054 7149 219445 32698 2152 10797 331394 49379 3250

3V Sum2(53fl): 37202 12501 818 5588 75946 25521 1670 8439 114690 38540 2523

Second-Order Impacts:

Tobacco Farming Impacts: Units Absolute Change % Change

Price of Tobacco $/Lb - D.08 -5.0

Domestic Tobacco Sales Million Lbs - 213 - 23.7

Export Tobacco Sales Million Lbs 60 10.0

Total Tobacco Revenue Million $ - 330 - 14.7 Quota Lease Revenue Million $ - 101 - 29.8

Producers' Su rplus Million $ -37 N.A.

Cigarette Industry Impacts: UNITS Absolute Change % Change

Price of Cigarettes $/100C - 1.13 -3.3

Domestic Cigarettes Sales Millions 5855 1.0 Export Cigarettes Sales Millions 892 1.4 Total Cigarette Revenue Million $ - 499 -3.0

(Net of Federal Excise Tax)

Tax & Consumer Impacts: Unit Absolute Change % Change

Federal Excise Tax Revenue Million $ 47 10

Consumers' S jrplus Million $ 662 N.A.

Health Impacts

Discount Rate Change in Medical Costs ( Dhange in Expected Life (PV 1986 Million $) (PV Years)

% 2374 -1154122

5 % 572 - 264902

Employment Impacts by Sector (Change in Full-T"ime Equivalent Jobs): Sector: Tobacco Cigarette Warehouse Su Dport Wholesale Retail TOl

Impact: -5350 -983 171 - 167 359 156 - 6156

63
Table C.5

Modification: Decrease Circumference from 25 to 21 millimeters Assumptions: Immediate Implementation, and a 5.0% Decrease in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = -29.40 Paper Cost = -16.00 Other Cost = -1.40

Change in Tar and Nicotine (%): 0.0

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life Number Prop Live Number Prop

Lives

464

Years

14245

Injured

2094

Loss

129

Lives Years Injured

3890

Loss

239

Lives

1260

Years

38679

Injured Loss

1986 862 26462 5686 349

1987 448 13756 2022 127 833 25553 3757 236 1217 37351 5491 345

1988 434 13327 1962 126 807 24756 3645 234 1179 36186 5328 341

1989 422 12939 1917 124 783 24037 3560 231 1145 35134 5204 338

1990 407 12504 1863 123 757 23228 3460 228 1106 33953 5058 333

1991 395 12131 1816 121 734 22535 3374 225 1073 32939 4932 329

1992 384 11785 1772 119 713 21893 3292 222 1043 32001 4812 324

1993 372 11428 1724 118 692 21230 3203 218 1011 31032 4681 319

1994 363 11153 1685 116 675 20718 3130 216 987 30283 4575 315

1995 352 10815 1634 114 655 20090 3035 212 957 29366 4436 310

PV Sum (0%): 4043 1 24082 18489 1217 7510 230503 34346 2260 10977 336923 50203 3304

PV Sum (5%): 3160 42943 14430 945 5870 79773 26807 1755 8580 116603 39183 2565

Second-Order Impacts:

Tobacco Farming Impacts:

Price of Tobacco

Domestic Tobacco Sales

Export Tobacco Sales

Total Tobacco Revenue

Quota Lease Revenue

Producers' Surplus

Cigarette Industry Impacts:

Price of Cigarettes

Domestic Cigarettes Sales

Export Cigarettes Sales

Total Cigarette Revenue

(Net of Federal Excise Tax)

Tax & Consumer Impacts:

Federal Excise Tax Revenue

Consumers' Surplus

Units

$/Lb

M lion Lbs

lion Lbs

lion $

lion $

lion $

UNITS

S/1000

lions

lions

lion $

Unit

Million

Million

Absolute Change

-0.09

-234

70

-363

-116

-40

Absolute Change

-1.14

-23219

1033

-1220

Absolute Change

-186

-986

% Change

-5.8

-26.0

11.6

-16.1

-34.3

N.A. % Change

-3.4

-4.0

1.6 -7.3

% Change

-4.0

N.A.

Health Impacts:

Discount Rate %

5 %

Change in Medical Costs

(PV 1986 Million $)

-9344

-2085

Change in Expected Life (PV Years)

5383399

1165669

Employment Impacts by Sector (Change in Full-Time Equivalent Jobs):

Sector: Tobacco Cigarette Warehouse Support Wholesale

Impact: -5764 -4333 -184 -480 -1182

Retail -617

TOTAL

-12562

64
Table C.6

Modification: Decrease Circumference from 25 to 21 millimeters Assumptions: Immediate Implementation, and a 5.0% Increase in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = -29.40 Paper Cost = -16.00 Other Cost = -1.40

Change in Tar and Nicotine (%): 0.0 1

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life Number Prop Live Number Prop

1986

Lives Years

340 1 0436

Injured

1534

Loss

94

Lives

779

Years

23923

Injured

3517

Loss Lives Years Injured

5499

Loss

216 1219 37410 338

1987 328 10078 1482 93 753 23101 3396 213 1177 36125 5311 334

1988 318 9764 1438 92 729 22381 3295 211 1140 34998 5153 330

1989 309 9480 1404 91 708 21731 3219 209 1107 33981 5033 327

1990 298 9161 1365 90 684 21000 3128 206 1070 32838 4892 322

1991 290 8888 1331 89 664 20373 3051 203 1038 31858 4770 318

1992 281 8635 1298 88 645 19793 2976 201 1008 30951 4654 314

1993 273 8373 1263 86 625 19193 2895 197 978 30013 4528 309

1994 266 8171 1234 85 610 18730 2830 195 954 29289 4425 305

1995 258 7924 1197 84 592 18163 2743 191 925 28402 4290 299

PV Sum (0%): 2962 90909 13546 891 6789 208387 31050 2044 10617 325865 48555 3196

PV Sum (5%): 2315 31462 10572 692 5307 72119 24235 1 586 8298 112776 37897 2481

Second-Order Impacts:

Tobacco Farming Impacts: Units Absolute Change % Change

Price of Tobacco $/Lb -0.06 -4.2

Domestic Tobacco Sales Million Lbs -192 - 21.3

Export Tobacco Sales Million Lbs 51 8.4

Total Tobacco Revenue Million $ -298 - 13.2

Quota Lease Revenue Million $ -85 - 25.2

Producers' Surplus Million $ -34 N.A.

Cigarette Industry Impacts: Units Absolute Change % Change

Price of Cigarettes $/100CI -1.12 -3.3

Domestic Cigarettes Sales Millions -34929 -6.0

Export Cigarettes Sales Millions 752 1.2 Total Cigarette Revenue Million $ 222 1.3 (Net of Federal Excise Tax)

Tax & Consumer Impacts: Unit Absolute Change % Change

Federal Excise Tax Revenue Million $ 279 6.0 Consumers' Sijrplus Million $ 2310 N.A.

Health Impacts: Discount Rate Change in Medical Costs ( Change in Expected Life (PV 1986 Million $) (PV Years)

% 14162 -6885151

5 % 3409 -1580327

Employment Impacts by Sector (Change in Full-Time Equivalent Jobs): Sector: Tobacco Cigarette Warehouse £.upport Wholesale Retail TOT

Impact: -4936 2368 158 146 1801 929 249

65
Table C.7

Modification: Increase Percentage of Expanded Tobacco from 25 to 50%

Assumptions: Four-year Grace Period, and No Change in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = -12.73 Paper Cost = 0.00 Other Cost = -0.58

Change in Tar and Nicotine (%): 0.0

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Inj

Year 25% Fewer Fires

uries Avoided,, and Property Losses (Million $) Avoided

50% Fewer Fires 75% Fewer Fires

Life Lives Years

Number

Injured

Prop

Loss Lives

Life YearsNumber

Injured

Prop

Loss Lives

Live

Years

Number

Injured

Prop

Loss

1986

1987

1988

1989

1990 359 11023

1991 348 10694

1992 338 10389

1993 328 10075

1994 320 9832

1995 311 9534

1642

1601

1562

1520

1485

1440

108

107

105

104

102

101

725

703

683

662

646

627

22241

21577

20962

20328

19837

19237

3313

3231

3152

3066

2997

2906

218 1090

215 1058

212 1027

209 996

207 972

203 943

33459

32460

31536

30581

29843

28939

4984

4860

4742

4613

4509

4371

328

324

320

315

311

305

PV Sum (0%): 2005 61547

PV Sum (5%): 1401 19043

9251

6462

627

437

4046

2827

124182

38423

18665

13038

1264 6086

882 4253

186817

57802

28079

19614

1902

1327

Second-Order Impacts:

Tobacco Farming Impacts:

Price of Tobacco

Domestic Tobacco Sales

Export Tobacco Sales

Total Tobacco Revenue

Quota Lease Revenue

Producers' Surplus

Units

$/Lb

Million Lbs

Million Lbs

Million $

Million $

Million $

Absolute Change

-0.04

-79

29

-128

-52

-13

% Change

-2.7

-9.6

5.4 -6.2

-16.9

N.A.

Cigarette Industry Impacts:

Price of Cigarettes

•Domestic Cigarettes Sales

Export Cigarettes Sales

Total Cigarette Revenue

(Net of Federal Excise Tax)

Units

$/iooo

Millions

Millions

Million $

Absolute Change

-0.49

2322

436

-195

% Change

-1.5

-0.4

0.7 -1.3

Tax & Consumer Impacts:

Federal Excise Tax Revenue

Consumers' Surplus

Unit

Million

Million $

$

Absolute Change

19

262

% Change

0.4 N.A.

Health Impacts:

Discount Rate Change in Medical Costs ( (PV 1986 Million $) % 958

5 % 198

Change in Expected Life (PV Years)

-463952

-91733

Employment Impacts by Sector (Change in Full-Time Equivalent Jobs): Sector: Tobacco Cigarette Warehouse Support

Impact: -1749 319 -56 30

Wholesale

147

Retail 62TOTAL

-1248

66
Table C.8

Modification: Increase Percentage of Expanded Tobacco from 25 to 50%

Assumptions: Four-year Grace Period, and a 5.0% Decrease in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = -12.73 Paper Cost = 0.00 Other Cost = -0.58

Change in Tar and Nicotine (%): 0.0

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Lives Years

Number

Injured

Prop

Loss Lives

761

738

717

695

679

658

Life Number

Years Injured

23354 3479

22657 3393

22011 3310

21345 3220

20830 3147

20199 3051

Prop

Loss Lives

229 1 1 08

226 1075

223 1 045

220 1013

217 988

213 959

Live

Years

34015

33000

32060

31089

30339

29420

Number

Injured

Prop

Loss

1986

1987

1 988

1989

1990 414 12692

1991 401 12314

1992 390 11963

1993 378 11601

1994 369 11321

1995 358 10978

1891

1844

1799

1750

1710

1658

124

123

121 119

118

116

5067

4941

4821

4690

4583

4444

334

330

325

320

316

310

PV Sum (0%): 2309 70868

PV Sum (5%): 1613 21927

10652

7441

722

503

4248

2969

130396

40345

19599

13691

1328 6188

926 4324

189924

58764

28546

19941

1934

1349

Second-Order Impacts:

Tobacco Farming Impacts:

Price of Tobacco

Domestic Tobacco Sales

Export Tobacco Sales

Total Tobacco Revenue

Quota Lease Revenue

Producers' Surplus

Units

$/Lb

Million Million

Million

Million Million

Lbs

Lbs

$

$

$

Absolute Change

-0.05

-103

40

-166

-70

-16

% Change

-3.6

-126

7.3 -6.1

-228

N.A.

Cigarette Industry Impacts:

Price of Cigarettes

Domestic Cigarettes Sales

Export Cigarettes Sales

Total Cigarette Revenue

(Net of Federal Excise Tax)

Units

$/1000

Millions

Millions

Million $

Absolute Change

-0.51

-24203

594

-873

% Change

-1.5

-4.5

1.0 -5.7

Tax & Consumer Impacts:

Federal Excise Tax Revenue

Consumers' Surplus

Unit

Million Million $

$

Absolute Change

-194

-1232

% Change

-4.5

N.A

Health Impacts:

Discount Rate Change in Medical Costs ( (PV 1986 Million $)

% - 9758

5% -1881

Change in Expected Life (PV Years)

5623657

1054693

Employment Impacts by Sector (Change in Full-Time Equivalent Jobs): Sector: Tobacco Cigarette Warehouse Support

Impact: -2216 -2734 -71 -255

Wholesale

-1258

Retail -644

TOTAL

-7177

67
Table C.9

Modification: Increase Percentage of Expanded Tobacco from 25 to 50%

Assumptions: Four-year Grace Period, and a 5.0% Increase in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = -12.73 Paper Cost = 0.00 Other Cost = -0.58

Change in Tar and Nicotine (%): 0.0

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life Number Prop Live Number Prop

Lives Years Injured Loss Lives Years Injured Loss Lives Years Injured Loss

1986

1987

1988

1989

1990 305 9354 1393 92 688 21128 3147 207 1072 32902 4901 323

1991 296 9074 1359 91 668 20497 3069 205 1040 31920 4780 319

1992 287 8816 1326 89 649 19914 2994 202 1010 31011 4663 314

1993 279 8549 1290 88 629 19310 2913 199 980 30072 4536 309

1994 272 8343 1260 87 614 18844 2847 196 956 29346 4434 306

1995 264 8090 1222 85 595 18274 2760 193 927 28458 4298 300

PV Sum (0%): 1702 52226 7850 532 3843 1 1 7968 17731 1201 5985 183710 27612 1871

PV Sum (5%): 1189 16159 5483 371 2686 36500 12386 838 4183 56841 19288 1305

Second-Order Impacts:

Tobacco Farming Impacts:

Price of Tobacco

Domestic Tobacco Sales

Export Tobacco Sales

Total Tobacco Revenue

Quota Lease Revenue

Producers' Surplus

Cigarette Industry Impacts:

Price of Cigarettes

Domestic Cigarettes Sales

Export Cigarettes Sales

Total Cigarette Revenue

(Net of Federal Excise Tax)

Tax & Consumer Impacts:

Federal Excise Tax Revenue

Consumers' Surplus

Units

$/Lb

Million Lbs

Million Lbs

Million $

Million $

Million $

Units

$/1000

Millions

Millions

Million $

Unit

Million

Million

Absolute Change

-0.03

-55

19

-89

-33

-9

Absolute Change

-0.47 - 28846

277

483

Absolute Change

231

1755

% Change

-1.7

-6.7

3.4 -4.3

-10.8

N.A. % Change

-1.4

5.4 0.5

3.2

% Change

5.4 N.A.

Health Impacts:

Discount Rate %

5 %

Change in Medical Costs

(PV 1986 Million $)

11909

2461

Change in Expected Life (PV Years)

-5764660

-1139797

Employment Impacts by Sector (Change in Full-Time Equivalent Jobs):

Sector: Tobacco Cigarette Warehouse Support Wholesale

Impact: -1283 3373 -41 315 1552

Retail 767

TOTAL

4682

68
Table C.10

Modification: Increase Percentage of Expanded Tobacco from 25 to 50%

Assumptions: Immediate Implementation, and No Change in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = -12.73 Paper Cost = 0.00 Other Cost = -0.58

Change in Tar and Nicotine (%): 0.0

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life Number Prop Live Number Prop

Lives Years Injured Loss Lives Years Injured Loss Lives Years Injured Loss

1986 409 12558 1846 113 825 25337 3725 229 1242 38117 5603 344

1987 395 12126 1783 112 797 24467 3597 226 1199 36808 5411 340

1988 383 11748 1730 111 772 23704 3490 224 1162 35660 5250 336

1989 372 11407 1690 110 750 23015 3409 221 1128 34624 5129 333

1990 359 11023 1642 108 725 22241 3313 218 1090 33459 4984 328

1991 348 10694 1601 107 703 21577 3231 215 1058 32460 4860 324

1992 338 10389 1562 105 683 20962 3152 212 1027 31536 4742 320

1993 328 10075 1520 104 662 20328 3066 209 996 30581 4613 315

1994 320 9832 1485 102 646 19837 2997 207 972 29843 4509 311

1995 311 9534 1440 101 627 19237 2906 203 943 28939 4371 305

PV Sum (0%): 3564 1 09386 16299 1073 7190 220705 32886 2164 10817 332024 49473 3256

PV Sum (5%): 2786 37856 12721 833 5620 76382 25667 1680 8455 114908 38614 2527

Second-Order Impacts:

Tobacco Farming Impacts:

Price of Tobacco

Domestic Tobacco Sales

Export Tobacco Sales

Total Tobacco Revenue

Quota Lease Revenue

Producers' Surplus

Cigarette Industry Impacts:

Price of Cigarettes

Domestic Cigarettes Sales

Export Cigarettes Sales

Total Cigarette Revenue

(Net of Federal Excise Tax)

Tax & Consumer Impacts:

Federal Excise Tax Revenue

Consumers' Surplus

Units

$/Lb

Million Lbs

Million Lbs

Million $

Million $

Million $

Units

$/1000

Millions

Millions

Million $

Unit

Million

Million

Absolute Change

-0.04

-87

32

-140

-57

-14

Absolute Change

-0.49

2542

477

-214

Absolute Change

20

287

% Change

-2.7

-9.6

5.4 -6.2

-16.9

N.A. % Change

-1.5

0.4

0.7 -1.3

°/o Change

0.4 N.A.

Health Impacts:

Discount Rate %

5 %

Change in Medical Costs

(PV 1986 Million $)

1030

248

Change in Expected Life (PV Years) - 501 000

-114993

Employment Impacts by Sector (Change in Full-Time Equivalent Jobs): Sector: . Tobacco Cigarette Warehouse Support

Impact: -1915 350 -61 33

Wholesale

161

Retail 68TOTAL

-1366

69
Table C.11

Modification: Increase Percentage of Expanded Tobacco from 25 to 50%

Assumptions: Immediate Implementation, and a 5.0% Decrease in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = -12.73 Paper Cost = 0.00 Other Cost = -0.58

Change in Tar and Nicotine (%): 0.0

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life Number Prop Live Number Prop

Lives

471

Years

14459

Injured

2126

Loss

131

Lives

867

Years Injured Loss

240

Lives Years Injured Loss

1986 26605 3911 1262 38751 5696 350

1987 455 13963 2053 129 837 25691 3777 237 1219 37420 5501 345

1988 441 13527 1992 128 811 24890 3665 235 1181 36253 5337 342

1989 428 13134 1946 126 787 24167 3580 233 1147 35199 5214 339

1990 414 12692 1891 124 761 23354 3479 229 1108 34015 5067 334

1991 401 12314 1844 123 738 22657 3393 226 1075 33000 4941 330

1992 390 11963 1799 121 717 22011 3310 223 1045 32060 4821 325

1993 378 11601 1750 119 695 21345 3220 220 1013 31089 4690 320

1994 369 11321 1710 118 679 20830 3147 217 988 30339 4583 316

1995 358 10978 1258 116 658 20199 3051 213 959 29420 4444 310

PV Sum (0%): 4103 1 25952 18767 1235 7550 231749 34531 2273 10997 337546 50295 3310

PV Sum (5%): 3207 43590 14648 959 5902 80204 26952 1764 8596 116819 39256 2570

Second-Order Impacts:

Tobacco Farming Impacts:

Price of Tobacco

Domestic Tobacco Sales

Export Tobacco Sales

Total Tobacco Revenue

Quota Lease Revenue

Producers' Surplus

Cigarette Industry Impacts:

Price of Cigarettes

Domestic Cigarettes Sales

Export Cigarettes Sales

Total Cigarette Revenue

(Net of Federal Excise Tax)

Tax & Consumer Impacts:

Federal Excise Tax Revenue

Consumers' Surplus

Units

$/Lbon Lbs

on Lbs

on $ on $ on $

M

Units

S/1000

M lions lions

lion $

Unit

Million Million

Absolute Change

-0.05

-113

44

-182

-77

-17

Absolute Change

-0.51 - 26497

650

-955

Absolute Change

-212

-1348

% Change

-3.6

-12.6

7.3 -8.1

-22.8

N.A. % Change

-1.5

-4.5

1.0 -5.7

% Change

-4.5

N.A.

Health Impacts:

Discount Rate %

5 %

Change in Medical Costs

(PV 1986 Million $)

-10663

-2379

Change in Expected Life (PV Years)

6143322

1330215

Employment Impacts by Sector (Change in Full-Time Equivalent Jobs):

Sector: Tobacco Cigarette Warehouse Support

Impact: -2426 -2993 -78 -279

Wholesale

-1377

Retail -705

TOTAL

-7858

70
Table C.12

Modification: Increase Percentage of Expanded Tobacco from 25 to 50%

Assumptions: Immediate Implementation, and a 5.0% Increase in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = -12.73 Paper Cost = 0.00 Other Cost = -0.58

Change in Tar and Nicotine (%): 0.0

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life Number Prop Live Number Prop

Lives

347

Years Injured Loss

96

Lives

784

Years

24069

Injured

3538

Loss

217

Lives

1221

Years

37483

Injured

5510

Loss

1986 10656 1566 339

1987 335 10290 1513 95 757 23243 3417 215 1179 36195 5321 334

1988 325 9969 1468 94 734 22518 3315 212 1142 35067 5163 333

1989 315 9679 1434 93 712 21864 3239 210 1109 34048 5043 328

1990 305 9354 1393 92 688 21128 3147 207 1072 32902 4901 323

1991 296 9074 1359 91 668 20497 3069 205 1040 31920 4780 319

1992 287 8816 1326 89 649 19914 2994 202 1010 31011 4663 314

1993 279 8549 1290 88 629 19310 2913 199 980 30072 4536 309

1994 272 8343 1260 87 614 18844 2847 196 956 29346 4434 306

1995 264 8090 1222 85 595 18274 2760 193 927 28458 4298 300

PV Sum (0%): 3024 92820 13830 910 6831 209661 31240 2056 10637 326502 48650 3202

PV Sum (5%): 2364 32123 10795 707 5339 72560 24383 1596 8315 112997 37971 2485

Second-Order Impacts:

Tobacco Farming Impacts:

Price of Tobacco

Domestic Tobacco Sales

Export Tobacco Sales

Total Tobacco Revenue

Quota Lease Revenue

Producers' Surplus

Cigarette Industry Impacts:

Price of Cigarettes

Domestic Cigarettes Sales

Export Cigarettes Sales

Total Cigarette Revenue

(Net of Federal Excise Tax)

Tax & Consumer Impacts:

Federal Excise Tax Revenue

Consumers' Surplus

Units

$/Lb

M

M

lion Lbs

lion Lbs

lion $

lion $

lion $

Units

$/1000

llions

llions

llion $

Unit

Million Million

Absolute Change % Change

-0.03 -1.7

-61 -6.7

20 3.4 -97 -4.3

-36 -10.8

-10 N.A.

Absolute Change % Change

-0.47 -1.4

31580 5.4 304 0.5 529 3.2

Absolute Change % Change

253 5.4 1921 N.A.

Health Impacts:

Discount Rate %

5 %

Change in Medical Costs

(PV 1986 Million $)

12804-6224985

3083

Change in Expected Life (PV Years)

-1428801

Employment Impacts by Sector (Change in Full-Time Equivalent Jobs): Sector: Tobacco Cigarette Warehouse Support

Impact: -1405 -3692 -45 345

Wholesale

1699

Retail 840TOTAL

5126

71
Table C.13

Modification: Increase Paper Weight from 24 to 32 grams per square meter Assumptions: Four-year Grace Period, and No Change in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = 0.00 Paper Cost = 48.20 Other Cost = 0.33

Change in Tar and Nicotine (%): 0.0

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life Number Prop Live Number Prop

Lives Years Injured Loss Lives Years Injured Loss Lives Years Injured Loss

1986

1987

1988

1989

1990 365 11216 1671 110 729 22370 3332 219 1092 33523 4994 329

1991 355 10881 1629 109 707 21702 3250 217 1060 32523 4870 325

1992 344 10571 1590 107 687 21084 3170 214 1029 31596 4751 320

1993 334 10251 1546 105 666 20445 3084 210 998 30639 4622 315

1994 326 10004 1511 104 650 19952 3014 208 974 29900 4517 311

1995 316 9701 1465 102 630 19348 2922 204 945 28995 4379 306

PV Sum (0%): 2040 62626 9413 638 4069 124901 18773 1272 6098 187176 28134 1906

PV Sum (5%): 1426 19377 6575 445 2844 38645 13114 887 4261 57914 19652 1329

Second-Order Impacts:

Tobacco Farming Impacts: Units Absolute Change

Price of Tobacco $/Lb -0.00

Domestic Tobacco Sales Million Lbs -1

Export Tobacco Sales Million Lbs

Total Tobacco Revenue Million $ -1

Quota Lease Revenue Million $ -1

Producers' Surplus Million $ -0

Cigarette Industry Impacts: Units Absolute Change

Price of Cigarettes $/1000 0.16

Domestic Cigarettes Sales Millions -748

Export Cigarettes Sales Millions 5

Total Cigarette Revenue Million $ 65

(Net of Federal Excise Tax)

Tax & Consumer Impacts: Unit Absolute Change

Federal Excise Tax Revenue Million $ -6

Consumers' Surplus Million $ -84

Health Impacts:

Discount Rate Change in Medical Costs Change in Expected Life (PV 1986 Million $) (PV Years)

% -301 173716

5 % -58 32580

% Change

-0.0

-0.1

0.1 -0.1

-0.2

N.A. % Change

0.5 -0.1

00

0.4

% Change

-0.1

N.A.

Employment Impacts by Sector (Change in Full-Time Equivalent Jobs):

Sector: Tobacco Cigarette Warehouse Support Wholesale

Impact: -15 5 -0 449 -40

Retail -20TOTAL

379

72
Table C.14

Modification: Increase Paper Weight from 24 to 32 grams per square meter Assumptions: Four-year Grace Period, and a 5.0% Decrease in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = 0.00 Paper Cost = 48.20 Other Cost = 0.33

Change in Tar and Nicotine (%): 0.0

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life Number Prop Live Number Prop

Lives Years Injured Loss Lives Years Injured Loss Lives Years Injured Loss

1986

1987

1988

1989

1990 420 12884 1919 126 765 23481 3498 230 1110 34079 5077 334

1991 407 12499 1872 125 742 22781 3411 227 1077 33062 4951 330

1992 396 12143 1826 123 721 22132 3328 224 1046 32120 4830 326

1993 384 11775 1776 121 699 21461 3237 221 1015 31147 4699 320

1994 374 11491 1736 120 682 20944 3164 218 990 30396 4592 317

1995 363 11143 1683 117 662 20309 3068 214 960 29475 4452 311

PV Sum (0%): 2344 71936 10812 732 4271 131108 19706 1335 6199 190280 28600 1938

PV Sum (5%): 1638 22258 7553 511 2985 40566 13765 931 4332 58874 19978 1351

Second-Order Impacts:

Tobacco Farming Impacts: Units Absolute Change % Change

Price of Tobacco $/Lb -0.02 -1.1 Domestic Tobacco Sales Million Lbs -28 -3.4

Export Tobacco Sales Million Lbs 13 2.3

Total Tobacco Revenue Million $ -47 -2.3

Quota Lease Revenue Million $ -23 -7.4

Producers' Su rplus Million $ -4 N.A.

Cigarette Industry Impacts:

Price of Cigarettes

Domestic Cigarettes Sales

Export Cigarettes Sales

Total Cigarette Revenue

(Net of Federal Excise Tax)

Tax & Consumer Impacts:

Federal Excise Tax Revenue

Consumers' Surplus

Units

$/1000

Millions

Millions

Million 5

Unit

Million

Million

Absolute Change

0.13

-27243

186

-632

Absolute Change

-218

-1566

% Change

0.4 -5.1

0.3 -4.1

% Change

-5.1

N.A.

Health Impacts:

Discount Rate %

5 %

Change in Medical Costs

(PV 1986 Million $)

-10984

-2117

Change in Expected Life (PV Years)

6329962

1187158

Employment Impacts by Sector (Change in Full-Time Equivalent Jobs): Sector: Tobacco Cigarette Warehouse Support

Impact: -548 -3042 -18 164

Wholesale

-1441

Retail -724TOTAL

-5610

73
Table C.15

Modification: Increase Paper Weight from 24 to 32 grams per square meter Assumptions: Four-year Grace Period, and a 5.0% Increase in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = 0.00 Paper Cost = 48.20 Other Cost = 0.33

Change in Tar and Nicotine (%): 0.0

First-Order Impacts:

Fire Impacts:

Year

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

PV Sum (0°/o): PV Sum (5%)

Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop

Lives Years Injured Loss

Life Number Prop

Lives Years Injured Loss

Live Number Prop

Lives Years Injured Loss

311

302

293

284

277

269

9549

9264

9000

8727

8517

8259

1737 53315

1214 15496

1422

1387

1353

1317

1287

1247

8013

5598

94

92

9190

89

87

543

379

693 21258

672 20624

653 20036

633 19429

618 18960

599 1 8386

3867 118694

2702 36725

3167

3088

3013

2931

2864

2777

17840

12462

208

206

203

200

197

194

1209

843

1074 32967

1042 31983

1012 31072

982 30131

958 29404

929 28514

5997 184073

4191 56953

4911 323

Second-Order Impacts:

Tobacco Farming Impacts:

Price of Tobacco

Domestic Tobacco Sales

Export Tobacco Sales

Total Tobacco Revenue

Quota Lease Revenue

Producers' Surplus

Cigarette Industry Impacts:

Price of Cigarettes

Domestic Cigarettes Sales

Export Cigarettes Sales

Total Cigarette Revenue

(Net of Federal Excise Tax)

Tax & Consumer Impacts:

Federal Excise Tax Revenue

Consumers' Surplus

Units

$/Lb

ion Lbs

ion Lbs

ion $

ion $

ion $

M

Units

$/1 000

lions

lions

lion $

Unit

Million

Million

Absolute Change

-0.02

27

-12

45

22

4

Absolute Change

0.18

25748

-176

763

Absolute Change

206

1397

4789 319

4672 315

4545 310

4442 306

4307 301

27667 1874

19326 1307

% Change

-1.1

3.2 -2.2

2.2

7.1 N.A. % Change

0.5

4.8 -0.3

5.0

% Change

4.8 N.A.

Health Impacts:

Discount Rate %

5 %

Change in Medical Costs

(PV 1986 Million $)

10630

2196

Change in Expected Life (PV Years)

-5145414

-1017359

Employment Impacts by Sector (Change in Full-Time Equivalent Jobs):

Sector: Tobacco Cigarette Warehouse Support

Impact: 518 3053 17 733

Wholesale

1362

Retail 685

TOTAL

6368

74
Table C.16

Modification: Increase Paper Weight from 24 to 32 grams per square meter Assumptions: Immediate Implementation, and No Change in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = 0.00 Paper Cost = 48.20 Other Cost = 0.33

Change in Tar and Nicotine (%): 0.0

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life Number Prop Live Number Prop

Lives Years

1986 416 12778

Injured

1878

Loss

115

Lives

830

Years

25484

Injured

3746

Loss Lives

230 1 244

Years Injured Loss

38190 5614 345

1987 402 12339 1814 114 802 24609 3618 227 1201 36878 5422 340

1988 389 11954 1760 113 777 23841 3510 225 1164 35728 5260 337

1989 378 11607 1719 112 754 23148 3429 223 1130 34690 5138 334

1990 365 11216 1671 110 729 22370 3332 219 1092 33523 4994 329

1991 355 10881 1629 109 707 21702 3250 217 1060 32523 4870 325

1992 344 10571 1590 107 687 21084 3170 214 1029 31596 4751 320

1993 334 10251 1546 105 666 20445 3084 210 998 30639 4622 315

1994 326 10004 1511 104 650 19952 3014 208 974 29900 4517 311

1995 316 9701 1465 102 630 19348 2922 204 945 28995 4379 306

PV Sum (0%): 3626 111303 16584 1091 7232 221983 33076 2177 10838 332663 49568 3262

PV Sum (5%): 2834 38520 12944 847 5653 76824 25816 1690 8472 115129 38688 2532

Second-Order Impacts:

Tobacco Farming Impacts: Units Absolute Change % Change

Price of Tobacco $/Lb -0.00 -0.0

Domestic Tobacco Sales Million Lbs -1 -0.1

Export Tobacco Sales Million Lbs 0.1 Total Tobacco Revenue Million $ -1 -0.1

Quota Lease Revenue Million $ -1 -0.2

Producers' Surplus Million $ -0 N.A.

Cigarette Industry Impacts: Units Absolute Change % Change

Price of Cigarettes $/100CI 0.16 0.5 Domestic Cigarettes Sales Millions -818 -0.1

Export Cigarettes Sales Millions 6 0.0

Total Cigarette Revenue Million $ 71 0.4 (Net of Federal Excise Tax)

Tax & Consumer Impacts: Unit Absolute Change % Change

Federal Excise Tax Revenue Million $ -7 -0.1

Consumers' Surplus Million $ -92 N.A.

Health Impacts:

Discount Rate Change in Medical Costs < Change in Expected Life (PV 1986 Million - 5) (PV Years)

% -329 189769

5 % -73 41091

Employment Impacts by Sector (Change in Full-Time Equivalent Jobs): Sector: Tobacco Cigarette> Warehouse Support Wholesale Retail TOT

Impact: -16 6 -1 491 -43 -22 415

75
Table C.17

Modification: Increase Paper Weight from 24 to 32 grams per square meter Assumptions: Immediate Implementation, and a 5.0% Decrease in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = 0.00 Paper Cost = 48.20 Other Cost = 0.33

Change in Tar and Nicotine (%): 0.0

fl Hi HHHI

First-Order Impacts>:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life N umber Prop Live Number Prop

1986

Lives

478

Years

14677

Injured

2158

Loss

133

Lives

872

Years Injured

26750 3932

Loss Lives

242 1265

Years

38823

Injured Loss

5707 351

1987 462 14173 2084 131 842 25832 3798 238 1221 37490 5512 346

1988 447 13731 2022 130 815 25026 3685 236 1 1 83 36321 5347 343

1989 434 13332 1975 128 792 24299 3599 234 1149 35265 5224 339

1990 420 12884 1919 126 765 23481 3498 230 1110 34079 5077 334

1991 407 12499 1872 125 742 22781 3411 227 1077 33062 4951 330

1992 396 12143 1826 123 721 22132 3328 224 1046 32120 4830 326

1993 384 11775 1776 121 699 21461 3237 221 1015 31147 4699 320

1994 374 11491 1736 120 682 20944 3164 218 990 30396 4592 317

1995 363 11143 1683 117 662 20309 3068 214 960 29475 4452 311

PV Sum (0%): 4165 127851 19050 1254 7592 233015 34720 2285 11018 338179 50390 3316

PV Sum (5%): 3256 44247 14869 973 5934 80642 27099 1774 8612 1 1 7038 39329 2574

Second-Order Impacts:

Tobacco Farm ing Impacts: Units Absolute Change % Change

Price of Tobacco $/Lb -0.02 -1.1

Domestic Tobacco Sales Million Lbs -31 -3.4

Export Tobacco Sales Million Lbs 14 2.3

Total Tobacco Revenue Million $ -51 -2.3

Quota Lease Revenue Million $ -25 -7.4

Producers' Surplus Million $ -4 N.A.

Cigarette Industry Impacts: Units Absolute Change % Change

Price of Cigarettes $/100C 0.13 0.4 Domestic Cigarettes Sales Millions -29824 -5.1

Export Cigarettes Sales Millions 204 0.3

Total Cigarette Reverlue Million $ -692 -4.1

(Net of Federal Excise Tax)

Tax & Consumer Impacts: Unit Absolute Change % Change

Federal Excise Tax Revenue Million $ -239 -5.1

Consumers' Surplus Million $ -1714 N.A.

Health Impacts:

Discount Rate Change in Medical Costs ( Dhang 3 in Expected Life (PV 1986 Million ! B) (PV Years> % - 12002 6914895

5 % -2678 1 497284

Employment Impacts by Sector (Change in Full-1 ime Equivalent Jobs): Sector: Tobacco Cigarette Warehouse Su pport Wholesale Retail TOT

Impact: -600 -3330 -19 180 -1578 -793 - 6141

76
Table C.18

Modification: Increase Paper Weight from 24 to 32 grams per square meter Assumptions: Immediate Irr plementation, and a 5.0% I ncrease in Domestic Cigarette DemancI Cost Impacts (%): Tobacco Content = 0.00 Paper Cost == 48.20 Dther Cost = 0.33

Change in Tar and Nicotine (%): 0.0

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Inj jries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life Number Prop Live Number Prop

Lives Years Injured Loss Lives Years Injured Loss Lives Years Injured Loss

1986 354 10878 1599 98 789 24217 3560 219 1224 37557 5521 339

1987 342 10504 1544 97 762 23386 3438 216 1182 36267 5332 335

1988 332 10177 1498 96 738 22656 3336 214 1145 35136 5173 331

1989 322 9881 1464 95 717 21998 3258 212 1111 34115 5053 328

1990 311 9549 1422 94 693 21258 3167 208 1 074 32967 4911 323

1991 302 9264 1387 92 672 20624 3088 206 1 042 31983 4789 319

1992 293 9000 1353 91 653 20036 3013 203 1012 31072 4672 315

1993 284 8727 1317 90 633 19429 2931 200 982 30131 4545 310

1994 277 8517 1287 89 618 18960 2864 197 958 29404 4442 306

1 995 269 8259 1247 87 599 18386 2777 194 929 28514 4307 301

PV Sum (0%): 3087 94755 14119 929 6873 210951 31432 2069 1 0658 327147 48746 3208

PVSum(5°/o): 2413 32793 11020 721 5372 73006 24533 1606 8331 113220 38046 2490

Second-Order Impacts:

Tobacco Farming Impacts: Units Absolute Change % Change

Price of Tobacco $/Lb -0.02 -1.1

Domestic Tobacco Sales Million Lbs 29 3.2 Export Tobacco Sales Million Lbs -13 -2.2

Total Tobacco Revenue Million $ 49 2.2 Quota Lease Revenue Million $ 24 7.1 Producers' Surplus Million $ 4 N.A.

Cigarette Industry Impacts: Units Absolute Change % Change

Price of Cigarettes $/100C) 0.18 0.5 Domestic Cigarettes Sales Millions 28187 4.8 Export Cigarettes Sales Millions -193 -0.3

Total Cigarette Revenue Million $ 835 5.0

'

(Net of Federal Excise Tax)

Tax & Consumer Impacts: Unit Absolute Change % Change

Federal Excise Tax Revenue Million $ 225 4.8 Consumers' Surplus Million $ 1529 N.A.

i Health Impacts:

Discount Rate Change in Medical Costs Change in Expected Life (PV 1986 Million $) (PV Years)

% 11 428 -5556291

5 % 2751 -1275318

Employment Impacts by Sector (Change in Full-Time Equivalent Jobs):

! Sector: Tobacco Cigarette Warehouse Support Wholesale Retail TOTAL

, Impact: 567 3342 18 803 1491 750 6971

i; 11
Table C.19

Modification: Decrease Paper Porosity from 35 to 10 Coresta Units

Assumptions: Four-year Grace Period, and No Change in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = 0.00 Paper Cost = 0.00 Other Cost = 0.00

Change in Tar and Nicotine (%): 0.0

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Inj uries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life Number Prop Live Number Prop

Lives Years Injured Loss Lives Years Injured Loss Lives Years Injured Loss

1986

1987

1988

1989

1990 364 11169 1664 110 728 22338 3328 219 1092 33508 4992 329

1991 353 10836 1623 108 706 21672 3245 216 1059 32507 4868 325

1992 343 10527 1583 107 686 21054 3166 213 1029 31581 4749 320

1993 333 10208 1540 105 665 20417 3080 210 998 30625 4620 315

1994 325 9962 1505 104 649 19924 3010 208 974 29886 4515 311

1995 315 9660 1459 102 629 19321 2918 204 944 28981 4377 306

PV Sum (0%): 2032 62363 9373 635 4064 124726 18747 1 270 6095 187089 28120 1905

PV Sum (594)): 1420 19296 6548 443 2840 38591 13095 886 4259 57887 19643 1329

Second-Order Impacts:

Tobacco Farming Impacts: Units Absolute Change % Change

Price of Tobacco $/Lb -0.00 -1.1

Domestic Tobacco Sales Million Lbs 0.0 ; Export Tobacco Sales Million Lbs 0.0

Total Tobacco Revenue Million $ 0.0 Quota Lease Revenue Million $ 0.0 Producers' Surplus Million $ N.A.

Cigarette Industry Impacts: Units Absolute Change % Change

Price of Cigarettes $/ioocI 0.00 0.0 Domestic Cigarettes Sales Millions 0.0 Export Cigarettes Sales Millions 0.0

Total Cigarette Revenue Million $ 0.0 (Net of Federal Excise Tax)

Tax & Consumer Impacts: Unit Absolute Change % Change

Federal Excise Tax Revenue Million $ 0.0 Consumers' Surplus Million $ N.A.

Health Impacts:

Discount Rate Change in Medical Costs ( Change in Expected Life (PV 1986 Million $) (PV Years)

%

5 %

Employment Impacts by Sector (Change in Full-1"ime Equivalent Jobs):

Sector: Tobacco Cigarette Warehouse Support Wholesale Retail TOTAL

Impact:

78
Table C.20

Modification: Decrease Paper Porosity from 35 to 10 Coresta Units Assumptions: Four-year Grace Period, and a 5.0% Decrease in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = 0.00 Paper Cost = 0.00 Other Cost = 0.00

Change in Tar and Nicotine (%): 0.0 1

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Lives Years

Number

Injured

Prop

Loss Lives

Life Number

Years Injured

Prop

Loss Lives

Live

Years

Number Prop

Injured Loss

1986

1987

1988

1989

1990 418 12837

1991 406 12454

1992 394 12099

1 993 382 1 1 732

1994 373 11449

1995 362 11103

1912

1865

1819

1770

1730

1677

126

124

123

121 119

117

764

741

720

698

681

661

23450

22750

22102

21433

20916

20282

3493

3407

3324

3233

3160

3063

230 1110

227 1077

224 1 046

220 1014

218 990

214 960

34063

33047

32105

31133

30382

29462

5074 334

4948 330

4828 325

4696 320

4590 316

4450 311

PVSum(0%): 2335 71674

PV Sum (5%): 1 632 221 76

10773

7525

730

509

4266

2981

130933

40512

19680

13747

1333 6196

930 4330

190192

58847

28587 1937

19969 1351

Second-Order Impacts:

Tobacco Farming Impacts:

Price of Tobacco

Domestic Tobacco Sales

Export Tobacco Sales

Total Tobacco Revenue

Quota Lease Revenue

Producers' Surplus

Units

$/Lb

Million

Million Million

Million Million

Lbs

Lbs

$

$

$

Absolute Change

-0.02

-27

12

-45

-22

-4

% Change

-1.1

-3.3

2.2 -2.2

-7.2

N.A.

Cigarette Industry Impacts:

Price of Cigarettes

Domestic Cigarettes Sales

Export Cigarettes Sales

Total Cigarette Revenue

(Net of Federal Excise Tax)

Units

$/1000

Millions

Millions

Million $

Absolute Change

-0.03

-26495

181 -692

% Change

-0.1

-5.0

0.3 -4.5

Tax & Consumer Impacts:

Federal Excise Tax Revenue

Consumers' Surplus

Unit

Million

Million $

$

Absolute Change

-212

-1484

% Change

-5.0

N.A.

Health Impacts:

Discount Rate Change in Medical Costs < (PV 1986 Million $)

% - 1 0682

5 % - 2059

Change in Expected Life (PV Years)

6156246

1154578

Employment Impacts by Sector (Change in Full-Time Equivalent

Sector: Tobacco Cigarette Warehouse Su

Impact: -533 -3047 -17

Jobs):

pport

284

Wholesale

-1402

Retail -705

TOTAL

-5989

79
Table C.21

Modification: Decrease Paper Porosity from 35 to 10 Coresta Units Assumptions: Four-year Grace Period, and a 5.0% Increase in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = 0.00 Paper Cost = 0.00 Other Cost = 0.00

Change in Tar and Nicotine (%): 0.0

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life Number Prop Live Number Prop

Lives Years Injured Loss Lives Years Injured Loss Lives Years Injured Loss

1986

1987

1988

1989

1990 310 9502 1415 93 692 21227 3162 208 1074 32952 4909 323

1991 300 9218 1380 92 671 20593 3084 206 1042 31968 4787 319

1992 292 8955 1347 91 652 20006 3008 203 1012 31058 4670 315

1993 283 8684 1310 89 632 19401 2927 200 981 30117 4543 310

1994 276 8475 1280 88 617 18932 2860 197 958 29390 4440 306

1995 268 8218 1241 87 598 18359 2773 194 929 28500 4305 300

PV Sum (0%): 1728 53052 7974 540 3861 118519 17814 1207 5994 1 83985 27654 1873

PV Sum (5%): 1208 16415 5570 377 2698 36670 12444 842 4189 56926 19317 1307

Second-Order Impacts:

Tobacco Farming Impacts:

Price of Tobacco

Domestic Tobacco Sales

Export Tobacco Sales

Total Tobacco Revenue

Quota Lease Revenue

Producers' Surplus

Units

$/Lb

Million Lbs

Million Lbs

Million $

Million $

Million $

Absolute Change

-0.02

-27

-12

46

23

4

% Change

-1.1

-3.3

-2.2

2.2

7.3 N.A.

Cigarette Industry Impacts:

Price of Cigarettes

Domestic Cigarettes Sales

Export Cigarettes Sales

Total Cigarette Revenue

(Net of Federal Excise Tax)

Units

$/iooo

Millions

Millions

Million $

Absolute Change

-0.03

-26495

-181

694

% Change

-0.1

-5.0

-0.3

4.6

Tax & Consumer Impacts:

Federal Excise Tax Revenue

Consumers' Surplus

Unit

Million $

Million $

Absolute Change

212

1483

% Change

5.0 N.A.

Health Impacts:

Discount Rate Change in Medical Costs Change in Expected

(PV 1986 Million $) (PV Years)

% 1 0939 - 5294823

5 % 2260 - 1 046900

Life

Employment Impacts by Sector (Change

Sector: Tobacco Cigarette

Impact: 533 3047

in Full-Time Equivalent Jobs):

Warehouse Support

17 284

Wholesale

1402

Retail TOTAL

705 5989

80
Table C.22

Modification: Decrease Paper Porosity from 35 to 10 Coresta Units

Assumptions: Immediate Implementation, and No Change in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = 0.00 Paper Cost = 0.00 Other Cost = 0.00

Change in Tar and Nicotine (%): 0.0

^^_.

First-Order Impacts>:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewe r Fires

Life Number Prop Life Number Prop Live Number Prop

Lives Years Injured Loss Lives Years Injured Loss Lives Years njured Loss

1986 415 12724 1870 115 829 25448 3741 230 1244 38172 5611 345

1987 400 12287 1806 113 801 24574 3613 227 1201 36861 5419 340

1988 388 11904 1753 112 776 23808 3505 225 1163 35712 5258 337

1989 377 11558 1712 111 753 23116 3424 222 1130 34674 5136 334

1990 364 11169 1664 110 728 22338 3328 219 1092 33508 4992 329

1991 353 10836 1623 108 706 21672 3245 216 1059 32507 4868 325

1992 343 10527 1583 107 686 21054 3166 213 1029 31581 4749 320

1993 333 10208 1540 105 665 20417 3080 210 998 30625 4620 315

1994 325 9962 1505 104 649 19924 3010 208 974 29886 4515 311

1995 315 9660 1459 102 629 19321 2918 204 944 28981 4377 306

PV Sum (0%): 3611 110836 16515 1087 7222 221672 33030 2174 10833 332508 49545 3261

PV Sum (5%): 2823 38358 12890 844 5645 76717 25780 1687 8468 115075 38670 2531

Second-Order Impacts:

Tobacco Farming Impacts: Units Absolute Change % Change

Price of Tobacco $/Lb 0.00 0.0 Domestic Tobacco Sales Million Lbs 0.0 Export Tobacco Sales Million Lbs 0.0

Total Tobacco Revenue Million $ 0.0 Quota Lease Revenue Million $ 0.0 Producers' Surplus Million $ N.A.

Cigarette Industry Impacts: Units Absolute Change % Change

Price of Cigarettes $/100CI 0.00 0.0 Domestic Cigarettes Sales Millions 0.0 Export Cigarettes Sal es Millions 0.0

Total Cigarette Reverlue Million $ 0.0 (Net of Federal Excise Tax)

Tax & Consumer Impacts: Unit Absolute Change % Change

Federal Excise Tax Revenue Million $ 0.0 Consumers' Surplus Million $ N.A.

Health Impacts:

Discount Rate Change in Medical Costs ( Change in Expected Life (PV 1986 Million - B) (PV Yea -s) %

5 %

Employment Impacts by Sector (Change in Full-Time Equivalent Jobs): Sector: . Tobacco Cigarette• Warehouse Support Wholesale Retail TOT

Impact:
Table C. 23

Modification: Decrease Paper Porosity from 35 to 10 Coresta Units

Assumptions: Immediate Implementation, and a 5.0% Decrease in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = 0.00 Paper Cost = 0.00 Other Cost = 0.00

Change in Tar and Nicotine (%): 0.0 HI

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life N umber Prop Live Number Prop

1986

Lives

476

Years

14624

Injured

2150

Loss

132

Lives

870

Years Injured

26715 3927

Loss

241

Lives Years Injured

5705

Loss

1264 38805 351

1987 460 14122 2076 130 840 25797 3793 238 1221 37473 5509 346

1988 446 13681 2014 129 814 24993 3680 236 1183 36304 5345 342

1989 433 13284 1968 128 791 24266 3594 233 1148 35249 5221 339

1990 418 12837 1912 126 764 23450 3493 230 1110 34063 5074 334

1991 406 12454 1865 124 741 22750 3407 227 1077 33047 4948 330

1992 394 12099 1819 123 720 22102 3324 224 1046 32105 4828 325

1993 382 11732 1770 121 698 21433 3233 220 1014 31133 4696 320

1994 373 11449 1730 119 681 20916 3160 218 990 30382 4590 316

1995 362 11103 1677 117 661 20282 3063 214 960 29462 4450 311

PV Sum (0%): 4150 1 27384 18981 1249 7581 232704 34674 2282 11013 338024 50367 3315

PV Sum (5%): 3244 44085 14814 970 5926 80535 27063 1771 8608 116984 39311 2573

Second-Order Impacts:

Tobacco Farmi ng Impacts: Units Absolute Change % Change

Price of Tobacco $/Lb -0.02 1.1 Domestic Tobacco Sales Million Lbs -30 3.3 Export Tobacco Sales Million Lbs 13 2.2

Total Tobacco Revenue Million $ -50 2.2 Quota Lease Revenue Million $ -24 7.2 Producers' Surplus Million $ -4 N.A.

Cigarette Industry Impacts: Units Absolute Change % Change

Price of Cigarettes $/100CI -0.03 0.1

- Domestic Cigarettes Sales Millions -29006 5.0 Export Cigarettes Sales Millions 198 0.3

Total Cigarette: Revenue Million $ -758 4.5

(Net of Federal Excise Tax)

Tax & Consumer Impacts: Unit Absolute Change % Change

Federal Excise Tax Revenue Million $ -232 5.0 Consumers' Surplus Million $ -1624 N.A.

Health Impacts

Discount Rate Change in Medical Costs ( Dhang 3 in Expected Life (PV 1986 Million J B) (PV Years) % - 11673 6725126

5 % -2605 1456193

Employment Impacts by Sector (Change in Full-1 "ime Equivalent Jobs): Sector: Tobacco Cigarette Warehouse Su pport Wholesale Retail TOT

Impact: -584 -3336 -19 311 -1535 -771 — 6556

82
Table C. 24

Modification: Decrease Paper Porosity from 35 to 10 Coresta Units

Assumptions: Immediate Implementation, and a 5.0% Increase in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = 0.00 Paper Cost = 0.00 Other Cost = 0.00

Change in Tar and Nicotine (%): 0.0

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life Number Prop Live Number Prop

Lives Years Injured Loss Lives Years Injured Loss Lives Years Injured Loss

1986 353 10824 1591 98 788 24182 3555 218 1223 37539 5518 339

1987 341 10453 1537 97 761 23351 3433 216 1181 36250 5329 335

1 988 330 10127 1491 96 737 22623 3331 213 1144 35119 5171 331

1989 320 9832 1456 95 716 21966 3254 211 1111 34099 5051 328

1990 310 9502 1415 93 692 21227 3162 208 1074 32952 4909 323

1991 300 9218 1380 92 671 20593 3084 206 1042 31968 4787 319

1992 292 8955 1347 91 652 20006 3008 203 1012 31058 4670 315

1993 283 8684 1310 89 632 19401 2927 200 981 30117 4543 310

1994 276 8475 1280 88 617 18932 2860 197 958 29390 4440 306

1995 268 8218 1241 87 598 18359 2773 194 929 28500 4305 300

PV Sum (0%): 3072 94288 14049 925 6863 210640 31386 2066 10653 326992 48723 3207

PV Sum (5%): 2401 32631 10965 718 5364 72899 24497 1603 8327 113166 38028 2489

Second-Order Impacts:

Tobacco Farming Impacts: Units Absolute Change % Change

Price of Tobacco $/Lb 0.02 1.1 Domestic Tobacco Sales Million Lbs 30 3.3 Export Tobacco Sales Million Lbs -13 -2.2

Total Tobacco Revenue Million $ 50 2.2 Quota Lease Revenue Million $ 25 7.3 Producers' Surplus Million $ 4 N.A.

Cigarette Industry Im pacts: Units Absolute Change % Change

Price of Cigarettes $/100C) 0.03 0.1 Domestic Cigarettes Sales Millions 29006 5.0 Export Cigarettes Sal 9S Millions -198 -0.3

Total Cigarette Rever ue Million $ 760 4.6 (Net of Federal Excise Tax)

Tax & Consumer Impacts: Unit Absolute Change % Change

Federal Excise Tax Revenue Million $ 232 5.0 Consumers' Surplus Million $ 1624 N.A.

Health Impacts:

Discount Rate Change in Medical Costs ( 3hang<3 in Expected Life (PV 1986 Million $) (PV Years)

% 11760 -5717630

5 % 2831 -1312350

Employment Impacts by Sector (Change in Full-T'ime Equivalent Jobs): Sector: Tobacco Cigarette Warehouse S.upport Wholesale Retail TOTAL

Impact: 584 3336 19 311 1535 771 6556

83
Table C. 25

Modification: Add Chemical to Tobacco Blend

Assumptions: Four-year Grace Period, and No Change in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = 0.00 Paper Cost = 0.00 Other Cost = 2.83

Change in Tar and Nicotine (%): 0.0

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life Number Prop Live Number Prop

Lives Years Injured Loss Lives Years njured Loss Lives Years Injured Loss

1986

1987

1988

1989

1990 370 11364 1693 111 732 22468 3347 220 1094 33573 5001 329

1991 359 11025 1651 110 710 21798 3264 218 1061 32570 4877 325

1992 349 10711 1611 109 690 21177 3184 215 1031 31643 4758 321

1993 338 10386 1567 107 669 20535 3098 211 1000 30684 4629 316

1994 330 10136 1531 106 653 20040 3028 209 976 29944 4524 312

1995 320 9829 1485 104 633 19433 2935 205 946 29037 4386 306

PV Sum (0%): 2067 63451 9537 646 4087 125451 18856 1277 6107 187451 28175 1909

PV Sum (5%): 1445 19632 6662 451 2856 38815 13171 891 4268 57999 19681 1331

Second-Order Impacts:

Tobacco Farming Impacts: Units Absolute Change % Change

Price of Tobacco $/Lb -0.00 -0.1

Domestic Tobacco Sales Million Lbs -3 -0.4

Export Tobacco Sales Million Lbs 1 0.3

Total Tobacco Revenue Million $ -5 -0.3

Quota Lease Revenue Million $ -3 -0.8

Producers' Surplus Million $ -0 N.A.

Cigarette Industry Impacts: Units Absolute Change % Change

Price of Cigarettes $/100C) 0.65 1.9 Domestic Cigarettes Sales Millions -3095 -0.6

Export Cigarettes Sales Millions 21 0.0

Total Cigarette Revenue Million $ 267 1.8 (Net of Federal Excise Tax)

Tax & Consumer Impacts: Unit Absolute Change % Change

Federal Excise Tax Revenue Million $ -25 -0.6

Consumers' Surplus Million $ - 347 N.A.

Health Impacts:

Discount Rate Change in Medical Costs ( Changei in Expected Life (PV 1986 Million $) (PV Years)

% 1248 719149

5 % 241 134873

Employment Impacts by Sector (Change in Full-Time Equivalent Jobs): Sector: Tobacco Cigarette Warehouse Support Wholesale Retail TOTAL

Impact: -62 -205 -2 81 -164 -82 -435

84
Table C. 26

Modification: Add Chemical to Tobacco Blend

Assumptions: Four-year Grace Period, and a 5.0% Decrease in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = 0.00 Paper Cost = 0.00 Other Cost = 2.83

Change in Tar and Nicotine (%): 0.0

;First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Lives YearsNumber

Injured

Prop

Loss Lives

Life Number

Years Injured

Prop

Loss Lives

Live

Years

Number Prop

Injured Loss

1986

1987

1 988

1 989

1990 425 13032

1991 412 12643

1992 400 12282

1993 388 11910

1994 379 11623

1995 367 11271

1941

1893

1847

1797

1756

1702

128

126

124

122

121 119

768

745

724

702

685

664

23580

22876

22224

21551

21031

20395

3513

3425

3342

3251

3177

3080

231

228

225

222

219

215

1112

1079

1048

1016

992

962

34128

33110

32167

31192

30440

29518

5084 335

4958 331

4837 326

4705 321

4599 317

4458 311

PV Sum (0%): 2371 72761

PV Sum (5%): 1657 22513

10936

7639

741

517

4289

2997

131658

40736

19789

13823

1341

935

6208

4338

190555

58959

28641 1940

20007 1353

Second-Order Impacts:

Tobacco Farming Impacts:

Price ot Tobacco

Domestic Tobacco Sales

Export Tobacco Sales

Total Tobacco Revenue

Quota Lease Revenue

Producers' Surplus

Units

$/Lb

Million

Million

Million

Million

Million

Lbs

Lbs

$

$

$

Absolute Change

-0.02

-31

14

-51

-25

-4

% Change

-1.2

-3.7

2.5 -2.5

-8.0

N.A.

Cigarette Industry Impacts:

Price of Cigarettes

Domestic Cigarettes Sales

Export Cigarettes Sales

Total Cigarette Revenue

(Net of Federal Excise Tax)

Units

$/1000

Millions

Millions

Million $

Absolute Change

0.63 - 29590

202

-443

% Change

1.9 -5.6

0.3 -2.9

Tax & Consumer Impacts:

Federal Excise Tax Revenue

Consumers' Surplus

Unit

Million Million $

$

Absolute Change

-237

-1822

°/o Change

-5.6

N.A.

Health Impacts:

Discount Rate Change in Medical Costs I (PV 1986 Million $) 0% -11930

5 % - 2299

Change in Expected Life (PV Years)

6875395

1289451

Employment Impacts by Sector (Change in Full-Time Equivalent Jobs): Sector: Tobacco Cigarette Warehouse Support

Impact: -596 -3253 -19 -203

Wholesale

-1566

Retail -787

TOTAL

-6423

85
Table C. 27

Modification: Add Chemical to Tobacco Blend

Assumptions: Four-year Grace Period, and a 5.0% Increase in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = 0.00 Paper Cost = 0.00 Other Cost = 2.83

Change in Tar and Nicotine (%): 0.0

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life Number Prop Live Number Prop

Lives Years Injured Loss Lives Years Injured Loss Lives Years Injured Loss

1986

1987

1988

1989

1990 316 9696 1444 95 696 21357 3181 209 1076 33017 4918 324

1991 306 9407 1409 94 675 20719 3102 207 1044 32031 4796 320

1992 298 9139 1374 93 656 20129 3027 204 1014 31119 4679 315

1993 289 8862 1337 91 636 19519 2945 201 983 30176 4552 310

1994 282 8648 1307 90 621 19048 2878 198 959 29448 4449 307

1995 273 8387 1267 88 602 18472 2790 195 930 28557 4313 301

PV Sum (0%): 1764 54140 8137 551 3885 1 1 9244 17923 1214 6006 184348 27708 1877

PV Sum (5%): 1233 16751 5684 384 2715 36895 12520 847 4197 57038 19355 1309

Second-Order Impacts:

Tobacco Farming Impacts:

Price of Tobacco

Domestic Tobacco Sales 2.9 Export Tobacco Sales -2.0

Total Tobacco Revenue 2.0 Quota Lease Revenue 6.5 Producers' Surplus N.A.

Cigarette Industry Impacts:

Price of Cigarettes 2.0 Domestic Cigarettes Sales 4.4 Export Cigarettes Sales -0.3

Total Cigarette Revenue 6.4 (Net of Federal Excise Tax)

Tax & Consumer Impacts:

Federal Excise Tax Revenue 4.4 Consumers' Surplus N.A.

Units

$/Lb

lion Lbs

lion Lbs

lion $

lion $

lion $

Units

$/1000

ions

ions M ion $

Unit

Million $

Million $

Absolute Change

0.0124

-11

4120

3

Absolute Change

0.68

23400

-160

978

Absolute Change

187

127

% Change

1.0

% Change

% Change

Health Impacts:

Discount Rate %

5 %

Change in Medical Costs

(PV 1986 Million $)

9661

1996

Change in Expected Life (PV Years)

-4676302

-924605

Employment Impacts by Sector (Change in Full-Time Equivalent Jobs):

Sector: Tobacco Cigarette Warehouse Support

Impact: 471 2842 15 365

Wholesale

1238

Retail 622

TOTAL

5554

86
Table C. 28

Modification: Add Chemical to Tobacco Blend

Assumptions: Immediate Implementation, and No Change in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = 0.00 Paper Cost = 0.00 Other Cost = 2.83

Change in Tar and Nicotine (%): 0.0

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life Number Prop Live Number Prop

Lives Years Injured Loss Lives Years Injured Loss Lives Years Injured Loss

1986 422 12946 1903 117 834 25596 3763 231 1246 38246 5622 346

1987 407 12501 1838 115 805 24717 3634 228 1203 36933 5430 341

1988 395 12112 1783 114 780 23946 3526 226 1166 35781 5268 337

1989 383 11760 1742 113 757 23250 3444 224 1132 34741 5146 334

1990 370 11364 1693 111 732 22468 3347 220 1094 33573 5001 329

1991 359 11025 1651 110 710 21798 3264 218 1061 32570 4877 325

1992 349 10711 1611 109 690 21177 3184 215 1031 31643 4758 321

1993 338 10386 1567 107 669 20535 3098 211 1000 30684 4629 316

1994 330 10136 1531 106 653 20040 3028 209 976 29944 4524 312

1995 320 9829 1485 104 633 19433 2935 205 946 29037 4386 306

PV Sum (0%): 3674 112769 16803 1106 7264 222960 33222 2186 10854 333152 49641 3267

PV Sum (5%): 2872 39027 13115 858 5678 77163 25930 1697 8484 115298 38745 2536

Second-Order Impacts:

Tobacco Farming Impacts:

Price of Tobacco

Domestic Tobacco Sales

Export Tobacco Sales

Total Tobacco Revenue

Quota Lease Revenue

Producers' Surplus

Cigarette Industry Impacts:

Price of Cigarettes

Domestic Cigarettes Sales

Export Cigarettes Sales

Total Cigarette Revenue

(Net of Federal Excise Tax)

Tax & Consumer Impacts:

Federal Excise Tax Revenue

Consumers' Surplus

Units

$/Lb

ion Lbs

ion Lbs

ion $

ion $

ion $

Units

$/1 000

Millions

Millions

Million $

Unit

Million

Million

Absolute Change

-0.00

-4

2 -6

-3

-0

Absolute Change

0.65

-3388

23

292

Absolute Change

-27

-380

% Change

-1.0

-0.4

0.3 -0.3

-0.8

N.A. % Change

1.9 -0.6

0.0

1.8

% Change

-0.6

N.A.

Health Impacts:

Discount Rate %

5 %

Change in Medical Costs

(PV 1986 Million $)

-1364

-304

Change in Expected Life (PV Years)

785603

170107

Employment Impacts by Sector (Change in Full-Time Equivalent Jobs): Sector: Tobacco Cigarette Warehouse Support

Impact: -68 -225 -2 89

Wholesale

-179

Retail -90TOTAL

-476

87
Table C. 29

Modification: Add Chemical to Tobacco Blend

Assumptions: Immediate Implementation, and a 5.0 % Decrease in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = 0.00 Paper Cost = 0.00 Other Cost = 2.83

Change in Tar and Nicotine (%): 0.0

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life Number Prop Live Number Prop

Lives

484

Years

14846

Injured

2182

Loss

134

Lives

875

Years

26862

Injured

3949

Loss

243

Lives

1267

Years

38879

Injured Loss

1986 5715 351

1987 467 14336 2108 132 845 25940 3814 239 1223 37544 5519 347

1988 452 13889 2045 131 819 25131 3700 237 1185 36373 5355 343

1989 439 13485 1997 130 795 24401 3614 235 1151 35316 5231 340

1990 425 13032 1941 128 768 23580 3513 231 1112 34128 5084 335

1991 412 12643 1893 126 745 22876 3425 228 1079 33110 4958 331

1992 400 12282 1847 124 724 22224 3342 225 1048 32167 4837 326

1993 388 11910 1797 122 702 21551 3251 222 1016 31192 4705 321

1994 379 11623 1756 121 685 21031 3177 219 992 30440 4599 317

1995 367 11271 1702 119 664 20395 3080 215 962 29518 4458 311

PV Sum (0%): 4213 129317 19269 1268 7623 233992 34866 2295 11034 338668 50463 3321

PV Sum (5%): 3293 44754 15039 984 5959 80981 27213 1781 8624 1 1 7207 39386 2578

Second-Order Impacts:

Tobacco Farming Impacts: Units Absolute Change % Change

Price of Tobacco $/Lb -0.02 -1.2

Domestic Tobacco Sales Million Lbs -34 -3.7

Export Tobacco Sales Million Lbs 15 2.5

Total Tobacco Revenue Million $ -56 -2.5

Quota Lease Revenue Million $ -27 -8.0

Producers' Surplus Million $ -5 N.A.

Cigarette Industry Impacts: Units Absolute Change % Change

Price of Cigarettes $/1000 0.63 1.9 Domestic Cigarettes Sales Millions -32394 -5.6

Export Cigarettes Sales Millions 221 0.3

Total Cigarette Revenue Million $ -485 2.9 i (Net of Federal Excise Tax)

Tax & Consumer Impacts: Unit Absolute Change % Change

Federal Excise Tax Revenue Million $ -259 -5.6

Consumers' Surplus Million $ -1995 N.A.

Health Impacts:

Discount Rate Change in Medical Costs Change in Expected Life (PV 1986 Million $) (PV Years)

% 13036 7510729

5 % -2909 1626300

Employment Impacts by Sector (Change in Full-Time Equivalent Jobs):

Sector: Tobacco Cigarette Warehouse Support Wholesale Retail TOTAL

Impact: -652 -3561 -21 -223 -1714 -861 -7032
Table C. 30

Modification: Add Chemical to Tobacco Blend

Assumptions: Immediate Implementation, and a 5.0 % Increase in Domestic Cigarette Demand

Cost Impacts (%): Tobacco Content = 0.00 Paper Cost = 0.00 Other Cost = 2.83

Change in Tar and Nicotine (%): 0.0

First-Order Impacts:

Fire Impacts: Lives Saved (or Life Years Gained), Injuries Avoided,, and Property Losses (Million $) Avoided

Year 25% Fewer Fires 50% Fewer Fires 75% Fewer Fires

Life Number Prop Life Number Prop Live Number Prop

Lives Years Injured Loss Lives Years Injured Loss Lives Years Injured Loss

1986 360 11046 1624 100 793 24330 3577 220 1225 37613 5529 340

1987 348 10667 1568 98 765 23494 3454 217 1183 36321 5340 335

1988 337 10334 1522 97 742 22761 3351 215 1146 35189 5181 332

1989 327 10034 1486 97 720 22100 3274 213 1113 34166 5061 329

1990 316 9696 1444 95 696 21357 3181 209 1076 33017 4918 324

1991 306 9407 1409 94 675 20719 3102 207 1044 32031 4796 320

1992 298 9139 1374 93 656 20129 3027 204 1014 31119 4679 315

1993 289 8862 1337 91 636 19519 2945 201 983 30176 4552 310

1994 282 8648 1307 90 621 19048 2878 198 959 29448 4449 307

1995 273 8387 1267 88 602 18472 2790 195 930 28557 4313 301

PV Sum (0%): 3135 96221 14337 944 6905 211929 31578 2078 10674 327636 48819 3213

PV Sum (5%): 2450 33300 11190 732 5397 73345 24647 1613 8344 113389 38103 2494

Second-Order Impacts:

Tobacco Farming Impacts: Units Absolute Change % Change

Price of Tobacco $/Lb 0.01 1.0 Domestic Tobacco Sales Million Lbs 27 2.9 Export Tobacco Sales Million Lbs 12 - 2.0

Total Tobacco Reven ue Million $ 44 2.0 Quota Lease Revenue Million $ 22 6.5 Producers' Su rplus Million $ 4 N.A.

Cigarette Industry Impacts:

Price of Cigarettes

Domestic Cigarettes Sales

Export Cigarettes Sales

Total Cigarette Revenue

(Net of Federal Excise Tax)

Tax & Consumer Impacts:

Federal Excise Tax Revenue

Consumers' Surplus

Units

S/1000

Millions

Millions

Million $

Unit

Million

Million

Absolute Change

0.68

25618

-175

1071

Absolute Change

205

1234

% Change

2.0

4.4 -0.3

6.4

% Change

4.4 N.A.

Health Impacts:

Discount Rate %

5 %

Change in Medical Costs

(PV 1986 Million $)

10386

2501

Change in Expected Life (PV Years)

-5049719

-1159046

Employment Impacts by Sector (Change in Full-Time Equivalent Jobs):

Sector: Tobacco Cigarette Warehouse Support

Impact: 516 3112 17 400

Wholesale

1355

Retail 681

TOTAL

6080

89
NBS-114A (REV. 2-8C) U.S. DEPT. OF COMM.

BIBLIOGRAPHIC DATA

SHEET (See instructions)

1. PUBLICATION OR

REPORT NO.

NBS/TN-1242

2. Performing Organ. Report No 3. Publication Date January 1988

4. TITLE AND SUBTITLE

Improving the Fire Safety of Cigarettes

An Economic Impact Analysis

5. AUTHOR(S)

Rosalie T. Ruegg, Stephen F. Weber, Barbara C. Lippiatt, and Sieglinde K. Fuller

6. PERFORMING ORGANIZATION (If joint or other than NBS. see instructions)

NATIONAL BUREAU OF STANDARDS

U.S. DEPARTMENT OF COMMERCE

GAITHERSBURG, MD 20899

7. Contract/Grant No.

8. Type of Report & Period Covered

Final

9. SPONSORING ORGANI ZATION NAME AND COMPLETE ADDRESS (Street. City. State, ZIP)

Consumer Product Safety Commission

5401 Westbard, Room 420

Bethesda, MD 20816

10. SUPPLEMENTARY NOTES

|] Document describes a computer program; SF-185, FlPS Software Summary, is attached.

11. ABSTRACT (A 200-word or less factual summary of most significant information. If document includes a significant

bi bliography or literature survey, mention it here)

The Cigarette Safety Act of 1984 (Public Law 98-567) created the Technical

Study Group (TSG) on Cigarette and Little Cigar Fire Safety to investigate the

technical and commercial feasibility, economic impact and other consequences of

developing cigarettes and little cigars with "minimum propensity" to ignite

upholstered furniture and mattresses. This report supports the TSG by identifying

potential economic impacts from reducing the ignition propensity of cigarettes,

documenting a model for assessing economic impacts, and presenting the results of

the economic impact analyses for five selected cigarette modifications. The

modifications studied address a broad range of cigarette design characteristics:

tobacco content, circumference, paper weight, paper porosity, and chemical

.additives. The impact categories covered by the model include fire losses

(deaths, injuries, and property damage), tobacco farming, cigarette manufacturing,

Federal excise tax revenue, consumer surplus, health, and employment.

12. KEY WORDS (Six to twelve entries; alphabetical order; capitalize only proper names; and separate key words by semicolons)

cigarette; economic analysis; economic impact; economic model; fire; fire safety;

tobacco

13. AVAILABILITY

P2 Unl imited

"1 For Official Distribution. Do Not Release to NTIS

[X] Order From Superintendent of Documents, U.S. Government Printing Office, Washington. D.C.

20402.

~] Order From National Technical Information Service (NTIS), Springfield, VA. 22161

14. NO. OF

PRINTED PAGES

91

15. Price

USCOMM-DC 6043-P80
NBSTechnical Publications

Periodical

Journal of Research—The Journal of Research of the National Bureau of Standards reports NBS research and development in those disciplines of the physical and engineering sciences in which the Bureau is active. These include physics, chemistry, engineering, mathematics, and computer sciences. Papers cover a broad

range of subjects, with major emphasis on measurement methodology and the basic technology underlying

standardization. Also included from time to time are survey articles on topics closely related to the Bureau's

technical and scientific programs. Issued six times a year.

Nonperiodicals

Monographs—Major contributions to the technical literature on various subjects related to the Bureau's scientific and technical activities. Handbooks—Recommended codes of engineering and industrial practice (including safety codes) developed in cooperation with interested industries, professional organizations, and regulatory bodies.

Special Publications—Include proceedings of conferences sponsored by NBS, NBS annual reports, and other

special publications appropriate to this grouping such as wail charts, pocket cards, and bibliographies.

Applied Mathematics Series—Mathematical tables, manuals, and studies of special interest to physicists,

engineers, chemists, biologists, mathematicians, computer programmers, and others engaged in scientific and

technical work.

National Standard Reference Data Series—Provides quantitative data on the physical and chemical properties

of materials, compiled from the world's literature and critically evaluated. Developed under a worldwide pro- gram coordinated by NBS under the authority of the National Standard Data Act (Public Law 90-3%).

NOTE: The Journal of Physical and Chemical Reference Data (JPCRD) is published quarterly for NBS by

the American Chemical Society (ACS) and the American Institute of Physics (AIP). Subscriptions, reprints,

and supplements are available from ACS, 1155 Sixteenth St., NW, Washington, DC 20056.

Building Science Series—Disseminates technical information developed at the Bureau on building materials,

components, systems, and whole structures. The series presents research results, test methods, and perfor- mance criteria related to the structural and environmental functions and the durability and safety

characteristics of building elements and systems.

Technical Notes—Studies or reports which are complete in themselves but restrictive in their treatment of a

subject. Analogous to monographs but not so comprehensive in scope or definitive in treatment of the subject

area. Often serve as a vehicle for final reports of work performed at NBS under the sponsorship of other government agencies.

Voluntary Product Standards—Developed under procedures published by the Department of Commerce in Part 10, Title 15, of the Code of Federal Regulations. The standards establish nationally recognized re- quirements for products, and provide all concerned interests with a basis for common understanding of the

characteristics of the products. NBS administers this program as a supplement to the activities of the private sector standardizing organizations.

Consumer Information Series—Practical information, based on NBS research and experience, covering areas of interest to the consumer. Easily understandable language and illustrations provide useful background

knowledge for shopping in today's technological marketplace.

Order the above NBS publications from: Superintendent of Documents, Government Printing Office,

Washington, DC 20402. Order the following NBS publications—FIPS and NBSIR s—from the National Technical Information Service, Springfield, VA 22161.

Federal Information Processing Standards Publications (FIPS PUB)—Publications in this series collectively constitute the Federal Information Processing Standards Register. The Register serves as the official source of information in the Federal Government regarding standards issued by NBS pursuant to the Federal Property

and Administrative Services Act of 1949 as amended, Public Law 89-306 (79 Stat. 1127), and as implemented

by Executive Order 11717 (38 FR 12315, dated May 11, 1973) and Part 6 of Title 15 CFR (Code of Federal

Regulations).

NBS Interagency Reports (NBSIR)—A special series of interim or final reports on work performed by NBS

for outside sponsors (both government and non-government). In general, initial distribution is handled b\ the sponsor; public distribution is by the National Technical Information Service, Springfield, VA 22161, in papei

copy or microfiche form.
U.S. Department of Commerce

National Bureau of Standards

Gaithersburg, MD 20899

Official Business

Penalty for Private Use $300