Technical 

Study Group 

Cigarette Safety 

Act of 1984 

Economic 

Sector Data 

for Modeling I 

the Impact 

of Less 

Ignition.Prone 

Cigarettes 

1, 

'V 

-, 

October 1987 

DANIEL A. SUMNER 

DAVID GREENBERG 

ARMAND0 M. LAG0 

JENNIFER A. SHANNON , 

GERRY OSTER 

GARY T. FORD 

JOHN PRATHER BROWN 

JOHN E. CALFEE 
I Mission and Members 

I tie Tcchrxal Study Group or1 Cigarette arid Little Clgar Fiir 

S,ilcty was established by Public Law 98~567 the Cigarette 

Safety Act 01 1984. on October 30. 1984 lis mssion IS io 

"riiidertake siicti studies and other activities as it corisiders 

riccessary arid appropriate to detcrnme lhe lechnical arid 

mriirriercial feasibiiity. economic irripacf. and olher cerise 

yiierices of deveiopirig cigarelles and liffie cigars that will 

havc a rninirnum propensity fo ignite iiphoistered fiirnitiire or 

inattresses Such acfivifies iriciude identification of the 

differerif physical characteristics of cigarettes and iitlie cigars 

which have aii impact on lhe ignition ol upholstered hirnifiirc 

arid rnaflresses. ari analysis of the feasrbiiity of altering any 

perlirienf characteristics to reduce igiiifion properisity, aiid 

ari arialysis of the possible costs and benefils. both to the 

itidtistry arid the pubic associated with any siich product 

rriodificatioii." 

Copies of this or any oihcr reports 01 thc Technical Sludy 

Group inay be obtained froin Mr Coliri 8 Church. 

Secretariat. Technical Study Groiip. Consumer Producl 

Sateiy Commission. 5401 Westhard Avenue Wastiiriyion 

LIC 20207 

MEMBERS: 

Richard G. Gann Ph D, Ct-lairman 

Fdward Press. M D, Vice-Chairman 

Charles M Carey 

James L Charles Ph D 

Joseph W Cullen, Ph D 

John C Gerard 

James F Hoebel 

Prestori H. Leake. Ph D 

Michael E McGibeny 

Andrew McGuire 

Wendy H. Poet 

Alari Rodgrnari. Ph D 

Alexander W Spears Ill. PI1 D 

Hciiry Tovey 

Judith P Wilkenleld. Esq 

PAST MEMBERS: 

Howard Beales Ill 

Harry I Cohen 

Craig G Drurnrnond 

Max Hauscrmann. Ph D 
6 

Technical 

Study Group 

Cigarette Safety 

Act of 1984 

Economic 

Sector Data 

for Modeling 

the Impact 

of Less 

Ignition-Prone 

Cigarettes 

October 1987 

DANIEL A. SUMNER 

DAVID GREENBERG 

ARMAND0 M. LAG0 

JENNIFER A. SHANNON 

GERRY OSTER 

GARY T. FORD 

JOHN PRATHER BROWN 

JOHN E. CALFEE 

Preface 

1 liesc five reports were commissioned by the Technical 

Study Group under the Cigarette Safety Act of 1984 The 

purpose was to obtain the best possible timely information 

ds input for the mandated ecoiiornic impact analysis of 

cigarettes with a reduced propensity to Lduse furriishinqs 

fires These reports have not been subjected to peer revie\% 

by external iectinical experts 

ill 

Contents 

Preiace 

1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

The Impact of Clgarette Modifications 

on the Tobacco Production Industry in 

the United States, Daniel A. Sumner ..... 

Introduction ..................... 

Definitions of Variables, Baseline 

Values and Sources.. ........... 

Parameter Definitions, Values, and 

Sources .......................... 

Model and Interpretation. ......... 

The Employment Implications of Proposed 

Cigarette Design Modifications to Reduce 

Cigarette Ignition Propensity, 

David Greenberg .. ... ..... ..... .iii 1. Introduction.. ............ ... 

3. Cigarette Manufacturing Sector ..... 

2. Issues and Methodology ........ .. 

4. Tobacco Farming Sector ....... .. ...... 1 

... .7 

.... 9 

... .5 5. Tobacco Auction Warehousing 

Sector ............... ..... 

6. Other Support Industries .......... 

7. Wholesaling ............. .. 

8. Retailing.. ....... ....... 

9. Conclusions ..... .I1 ..... 

21 

25 

27 

31 

37 

41 

43 

45 

47 

49 

Baseline Values for Shifts in 

Exogenous Variables ............... 

Changes in the Tobacco Industry 

from Ciaarette Modifications ....... - .~ 

l3 

16 

- 

List of Tables 

Conclusion ......................... 17 

References ........ ........... ig Table 1. Hours of Labor Used to Grow 100 - Pounds of Burley Tobacco in 1976 .... 38 

List of Tables 

Table 1. 

Table 2. 

Table 3. 

Table 4. 

Table 5. 

List of Exogenous Variables ........ 

Initial Values for Prices and 

Quantities in the Tobacco Industry 

Parameters Used in the 

Equilibrium Displacement Model, 

Shares and Elasticities. ..... 

Example Baseline Values for 

Exogenous Variables. ... 

Results of the Example Baseline 

Values for Exogenous Variables for 

Proportional and Real Changes in 

the Tobacco Industry Variables. .. 

Table 2. Hours of Labor Used to Grow 100 

Pounds of Burley Tobacco in 1979 38 

, , , , , Table 3. Effects of Design Modifications on 

Tobacco Farm Employment ...... 

Table 4. Effects of Design Modifications on 

Tobacco Auction Warehousing .... 9 

Employment .......... ... 

, , 11 Table 5. Summary of the Estimates of the 

Direct and Indirect Employment 

Effects of the Proposed Cigarette 

Design Modifications ..... ... .... 13 

39 

.42 

50 

16 

" 
Cost Analysis of Options for SelfExtinguishing Cigarettes, 

Arrnando M. Lago and Jennifer A. Shannon .......... .51 

1. Introduction. ............................. .55 

2. The Structure of Costs in the 

Cigarette Industry ........................ .57 

3. Option 1: Decreases in 

Circumference .......................... .65 

4. Option 2: Use of Chemical Additives ........ .17 

5. Option 3: Use of Expanded Tobacco ........ .81 

6. Option 4: Increase Paper Thickness. ........ .89 - 

List of Tables 

Table 1. 

Table 2. 

Table 3. 

Table 4. 

Table 5. 

Table 6. 

Table 7. 

Table 8. 

Summary of Incremental Costs of 

Options for Reducing Cigarette 

Ignition Propensity ............ 

Representative Aggregate 

Cigarette Industry Cost 

Structure- 1986. ................ 

Disaggregate Cost Structure of 

Cigarette Manufacturing 

Operations- 1986 .......... 

Potential Product Design 

Modifications to Reduce the Ignition 

Propensity of Cigarettes Included in the 

Benefit-Cost Study .................. 

... 

... 

... 

Cost of Materials Used in the 

Manufacturing Operations per 

1,000 Cigarettes- 1986. .... 

Tobacco Leaf Costs Paid to 

Farrnersilmporters- 1985 . . 

Depreciation Costs per 1.000 

Cigarettes- 1986 .......... 

Summary of Cigarette Cost 

Structure- 1986. .......... 

... .56 

... .56 

... .58 

... .59 

... .60 

.. .62 

. . ,633 

.. .63 

Table 9. Tobacco Volume, Weight, and 

Paper Area for Various Cigarette 

Circumferences for American 

Blend Types ................ 

Table 10. Changes in the Material Costs 

Associated with Changes in 

Circumference- 1986 .......... 

Table 11. Costs of Parts in Equipment 

Modifications of Cigarette 

Makersiplug Makers ...... 

Table 12. Costs of Parts in Equipment 

Modifications of Cigarette 

Packers .................. 

Table 13. Costs of Labor and Idle 

Equipment in Modifications of 

Cigarette Makersiplug Makers 

Table 14. Costs of Labor and Idle 

Equipment in Modifications of 

Cigarette Packers-1986. ... 

Table 15. Innovation in Cigarette 

Manufacturing Equipment 

Performance .......... 

Table 16. Capital Expenditures in New 

Plant and Equipment in the 

Cigarette Manufacturing 

Industry-1974-1986 ...... 

Table 17. Age of Equipment in the 

Cigarette Industry- 1979-85 

Table 18. Costs of New Machines vs. 

Costs of Equipment Modifications 

Under Instantaneous 

Implementation- 1986. ......... 

Table 19. Incremental Costs of Replacing 

Cigarette Packers, Cigarette 

Makers and Plug Makers-1986. . 

......... 65 

......... 66 

......... 67 

......... 68 

......... 69 

......... 70 

......... 71 

......... 12 

......... 73 

..... .74 . 

..... .75 

vi 
Table 20. Summary of Costs Associated 

with Changes in Circumference- 1986 76 

Table 21. 

Table 22. 

Table 23. 

Table 24. 

Table 25. 

Table 26. 

Table 27. 

Table 28. 

Table 29. 

Table 30. 

Table 31. 

Table 32. 

Table 33. 

Summary of Incremental Costs 

Associated With Changes to 

21 mm Circumference- 1986 . .76 

Labor Requirements of Adding 

Chemical Additives to the 

Manufacturing Process .......... .78 

Option ....................... 78 

Typical Blend Composition .......... .82 

Costs of the Chemical Additives 

Relative Yields and Expanded 

Tobacco Used. ................ 83 

Changes in Tobacco Leaf Costs 

from Doubling Expanded 

Tobacco Use. .............. .83 

Capital Costs for Expanded 

Tobacco Processes- 1986 

License Fees for Tobacco 

Expansion Processes 

84 

85 

Labor Requirements and Costs 

for Tobacco Expansion Processes ..... .E6 

Incremental Costs of Expanded 

Tobacco-1986 ................ ..E7 

Summary of Expanded Cost 

Changes of Expanded Tobacco- 1986 ... .87 

Relative Cost Structure of Pulp 

and Paper Industry-I975 . . .... .91 

Industry Capacity Requirements- 1986 .. 

Changes in Cigarette Paper 

.92 

Table 34. Costs of Replacing Cigarette 

Makers Under a 4-Year Grace 

Period- 1986 ......... . . 96 

Table 35. lncremenlal Costs Associaled 

With Paper Thickness Under 4~Year 

Grace Period Implementation-1986 .... 97 

Table 36. Summary of Incremental Costs 

Associated With Paper Thickness 

Under 4-Year Grace Period 

lmolementation - 1986. ....... 98 

Estimates of the Economic and 

Non-Economic Health Consequences 

of Smoking, Smoking Cessation, 

and Reductions in the Amount 

Smoked, Gerry Oster .......... .... 99 

1. Introduction. ..... ...... 103 

2. Losses Attributable to Smoking .... 105 

3. Benefits Attributable to Smoking 

Cessation ... ,109 

4. Benefits Attributable to Reductions 

in the Amount Smoked .......... 113 

5. References ..... 115 

............... 

........ - 

List of Tables 

Table 1. Additional Expected Lifetime 

Medical Care Costs for the 

Treatment of Smoking-Related 

Diseases Due to Smoking for 

Light. Moderate, and Heavy 

Smokers, ...... ..... ,106 

Reductions in Years of Life 

Expectancy Due to Smoking for 

Light. Moderate, and Heavy 

Smokers ... ... 107 

Table 2. 

...... 
Table 3. 

Table 4. 

Table 5. 

Table 6. 

Reductions in Expected Lifetime 

Medical Care Costs for the 

Treatment of Smoking-Related 

Diseases Due to Smoking 

Cessation for Light, Moderate, and 

Heavy Smokers ...................... ,110 

Increase in Years of Life 

Expectancy Due to Smoking 

Cessation for Light, Moderate, and 

Heavy Smokers ...................... ,111 

Reductions in Expected Lifetime 

Medical Care Costs for the 

Treatment of Smoking-Related 

Diseases Due to Reductions in the 

Amount Smoked from Moderate to 

Light Smoking and from Heavy to 

Moderate Smoking ................... ,113 

Increases in Years of Life 

Expectancy Due to Reductions in 

the Amount Smoked from Moderate 

to Light Smoking and from Heavy 

to Moderate Smoking ................. ,114 

The Costs and Benefits to Smokers 

of Reduced Flammability Cigarettes, 

Gary T. Ford, John Prather Brown, and 

John E. Calfee ................................. 11 7 

1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

Introduction and Summary. ............... ,121 

Cigarettes and Fires ..................... ,123 

Reduced Flammability Cigarettes .......... ,127 

Ways to Implement New Cigarettes ........ ,131 

Expected Market Changes ................ ,135 

(Consumer Surplus) ...................... ,139 

Changes in Net Benefits to Smokers 

Appendix: The Demographic and 

Socioeconomic Characteristics 

of Smokers .................. ,141 

References ............................. 147 

- 

List of Tables 

Table 1. 

Table 2. 

Table 3. 

Table 4. 

Table 5. 

Relative Chances of Smokers 

Dying in Smoking Caused Fires .......... ,126 

Changes in Consumer Surplus 

from Price Changes .................. ,140 

Distribution of U.S. Population by 

Age, Race, and Sex, July 1, 1985 

Ratio of Smokers and Former 

Smokers to Total ..................... ,141 

Distribution of U.S. Population by 

Age, Race, and Sex, July 1, 1985 

Ratio of Smokers and Former Smokers . , , . ,142 

Estimated Number of New 

Smokers in 1986 ...................... ,146 

viii 
Economic 

Sector Data 

for Modeling 

the Impact 

of Less 

Ignition-Prone 

Cigarettes 

The Impact 

of Cigarette 

Modifications 

on the Tobacco 

Production Industry 

in the United States 

DANIEL A. SUMNER 

North Carolina State University 

and National Center for 

Food and Agricultural Policy 

Resources for the Future 

- 

Contents 

Preface .................... 

The Impact of Cigarette Modifications 

on the Tobacco Production Industry in 

the United States, Daniel A. Surnner ..... 

1. Introduction.. .................. 

3. Definitions of Variables, Baseline 

Values and Sources. ................ 

4. Parameter Definitions, Values, and 

Sources ........................ 

5. Baseline Values for Shifts in 

Exogenous Variables ............. 

6. Changes in the Tobacco Industry 

from Cigarette Modifications ......... 

7. Conclusion ... .............. 

8. References .............. .... 

2. Model and Interpretation ...... ... 

- 

List of Tables 

iii Table 1. List of Exogenous Variables ........ .7 

Table 2. initial Values for Prices and 

Quantities in the Tobacco Industry . . 9 

... .1 

.. .5 Table 3. Parameters Used in the 

.. .7 Equilibrium Displacement Model. 

Shares and Elasticities. ............ 11 

9 

Table 4. Example Baseline Values for 

11 Exogenous Variables 13 

13 Table 5. Results of the Example Baseline 

15 

17 the Tobacco Industry Variables 16 

19 

Values for Exogenous Variables for 

Proportional and Real Changes in 

3 

I 1 .Introduction 

This project on the agricultural impacts of reduced ignition 

cigarettes has been carried out in close contact with the 

Applied Economics group of the National Bureau of Stan 

dards The model is an extension of the log linear 

equilibrium model developed in Sumner and Wohlgenant [l] 

In Sumner and Wohlgenant we applied the model to the 

case of a cigarette excise tax increase In the present case 

cigarette modifications present a more complicated applica 

tion but the core of the model and its solution remain The 

other extensions of the present eflort are to draw more 

completely implications for the tobacco growing industry and 

to indicate more fully actual as well as proportional 

changes 

all the calculations It explains assumptions and provides 

further information necessary for interpretation Section 3 

The next section provides the mathematical model used in 

provides the baseline values lor all variables used in ttic 

model It contains a table sources. and associated discus 

sion Section 4 contains a table 01 parameter values and 

sources for shares and elasticities used in the model 

Section 5 presents the baseline assumed values that are 

used in the illustrative calculations of the agriciiltural impact 

of the cigarette modifications. Since no final set of modifica~ 

tions were available. a set of feasible values that show the 

extreme agricultural impacts were used for the example 

Stephen Weber, of NBS. was consulted on the feasibility of 

potential cigarette modifications. The final section contains a 

table of results that applies the model lo the best available 

data as documented in the previous sections It provides 

proportional and actual projected changes in prices and 

quantities of the two major tobacco types. It also includes 

estimates of changes in incomes from quota. labor, land. 

management, and producer surplus or returns to nori~quota 

quasi-fixed factors for each of the types of tobacco 121 

I 2.Model and Interpretation* 

- 

The 'tigarette modeycontained on the following pages is an 

adaptation of the model developed by Sumner and Wohlgenant in 1982 and published in 1985 [l]. The article 

provides further information on technical points. The most 

important underlying assumption of this sort of model is that 

the linear in logarithms formulation is a reasonably close 

approximation over the range of application. For changes in 

the order of magnitude discussed below this is no problem. 

The model applies to changes in industry conditions but 

does not provide information about the time path or 

dynamics of changes. The choice of parameter values, 

especially elasticities determines the "length of run" for the 

application In this case it is expected that several years 

would be required for a transition. 

Notation used in the model is defined in the tables in the 

following sections. The symbol "E" denotes logarithmic 

change: E(X) = dPn(X). The preliminary cigarette model as 

adapted by Stephen F. Weber consists of the following struc~ 

tural equations 

Cigarette Model 

Structural Equations 

1. EQcd = -qCdEPLd + ED,d 

2. EQ,, = -qcCEPce + ED, 

3. EO, = PcdEQcd + (1 - PCd)EQrC 

4. EPCd = a,d(EP,d + ED,,,) + aKEK + aMEM 

5 EP,, = yEPCd , where y = [l/(l - ar)] 

6. = -a,da~lrlEPtd + EQ, + ED,,, 

~~~ 

7. EQ,, = -qteEPtd 

8. EQ, = BcdEQcd + (1 -PdEQw 

9. EQ, = &EPid 

The exogenous variables are defined in Table 1 

Table 1. List of Exogenous Variables 

Variable Structural 

Svmbol Meanina Eauationls) 

ED,,, Proportional Change in 1 

Domestic Demand for 

Cigarettes 

ED,, Proportional Change in 2 

Export Demand for 

Cigarettes 

~-~ 

EDtd Proportional Change in 46 

Domestic Tobacco per 

Cigarette and exogenous 

change in costs 

EK Proportional Change in 4 

EM Proportional Change in 4 

Paper Cost per Cigarette 

~ 

all Other Cigarette 

Manufacturing Costs per 

'[Editors nofe The cigarette model discussed in thrs report is a prebmi 

nary version oi the model thaf Stephen F Weber of fhe Applkd 

Economics Group 01 rhe National Bureau of Standards developed and 

applred to the economic impact analyses presented n Volume 4 of 

thrs series For complete details oi the final verston of the economicim 

pact model and the impacf analyssis resulfs the reader is directed lo 

that Volume / 

7 
The model may be extended easily to provide information 

about the incomes from various sources for the two primary 

types of tobacco used in cigarettes. Tobacco program structure and industry conditions provide that the proportional 

change in price from cigarette modifications will be the 

same for each tobacco type. Therefore proportional 

responses will be the same but actual quantity pound or 

dollar changes will be different. 

Proportional changes of quota income results from both 

lease rate and quantity changes. The formula is similar to 

that for revenue: 

ELI = EQ, + EL + EQtEL. 

The other income changes are for inputs that are not fixed 

to the industry so their prices are unaffected and the proportional change in income is equal to the proportional change 

in tobacco quantity. These are changes in income derived 

from the tobacco industry and do not indicate net changes 

in income once factor mobility is accounted for. 

Labor Income: EWI = EQt 

Land Income: ET1 = EQt 

Farm management returns: 

Producer surplus or economic rent is not appropriately 

calculated in propoflional terms because that would entail 

extending the marginal cost function back to the vertical 

axis. However the change in producer surplus may be 

calculated following the approach in Sumner and Wohlgenant [l]. 

EFI = EQ, 

Psi-ps’ = IIEat(P,d-~)(a’ +(i/zp-a’). 

8 
I 3.Definitions of Variables, 

Baseline Values and Sources 

- 

The variables denoted by capital letters in the mathematical 

model, other than those exogenous shifts defined in Table 1, 

are defined in Table 2. That table also provides initial values 

for the level of the variable in the spring of 1986. The 

sources for the values are given in the table with complete 

citations in the list at the end of this report. For those variables about which there may be some approximation a 

range that suggests potential variation is also shown in the 

table. For completeness the totals for "burley" include small 

quantities of the minor cigarette types. 

in a state of considerable turmoil during the early and mid 

1980s. The changes in the tobacco program that were 

enacted in April of 1986 seem to have ended the most 

obvious problems by reducing the domestic price. However 

large inventories and low production levels relative to disap~ 

pearance indicates a period of transition for another few 

years. I have chosen to let the baseline values for quantities 

reflect the more permanent and stable disappearance 

figures rather than the clearly temporary production and 

quota levels in effect currently. Further background on this is 

available in Sumner [3] 

The tobacco production industry in the United States was 

Table 2. Initial Values for Prices and 

Quantities in the Tobacco Industry 

Symbol Definition Value 

(Source) (Range) 

Qfd Quantity of U.S. cigarettes sold 580 billion 

(560. 600) 

Q,, Quantity of U.S. cigarettes sold 70 billion 

(60, 70) 

in the domestic market [4] 

in the tax exempt market 14. 

(Table I)] 

Q, Total U.S. cigarette quantity 650 billion 

Q,=acd+aC, (620. 680) 

Symbol Definition Value 

(Source) (Range) 

Wholesale price of U.S 

cigarettes [4, Fable 5)] 

Federal excise tax on 

cigarettes [4. (Table 5)] 

Export price of U.S. cigarettes 

Quantity of U.S. cigarette 

tobacco sold in the domestic 

market 14. Fable 16. 23. 24)] 

Quantity of U.S. cigarette 

tobacco exported [4. Fable 16, 

23. 24)) 

Total Quantity of U.S. cigarette 

tobacco 

Quantity of burleyiflue-cured 

Price of U.S. cigarette tobacco 

131 

Total revenue in U.S. cigarette 

tobacco production R,=Q,*Pld 

Revenue of burleyiflue-cured 

Lease rate for tobacco quota 

Labor costs per pound of 

tobacco burleyiflue-cured 16, 

Fable 34); 3, (Table 33)] 

Land costs per pound of 

tobacco 

Felephone response W.D. 

Toussaint. N.C. State Univ. 

Farm management returns per 

pound of tobacco 16. (Table 

34); 14, Fable 33)] 

P,, = Pcd -Ted 

al=ald+atc 

[51 

535ithousand 

(33. 36) 

$8ithousand 

527hhousand 

(25. 28) 

900 mil. Ibs 

(800, 1000) 

600 mil. Ibs 

(500, 700) 

1500 mil. Ibs 

(1300, 1700) 

6001900 

mil. Ibs. 

$1.5011b 

(1.40, 1.60) 

$2250 million 

(1820. 2720) 

$900/$1350 

million 

50.3011b. 

(0.25, 0.35) 

$0.6010.30 

(50.70125,40) 

50.0211b. 

(0.015, 0.03) 

$0.1011 b. 

(0.05, 0.15) 

9 

I 4. Parameter Definitions, 

Values and Sources 

Ari ddvantdge of a loq linear model is that it uses shares and 

oldsticities as parameters in the structural equations These 

values are often available lrom basic data and econometric 

research The quantity and cost shares listed in Table 3 are 

mostly taken from the USDA reporls on the tobacco industry I 

also relied on conversations with industry experts The elastici 

ties are mostly taken lrom oiiginal econometric research that 

tias been reported in a number of professional publications 

For most of the parameters a range is provided Further anal 

ysis at the National Bureau of Standards will use a computer 

simulation version of the model to indicate the sensitivity of the 

results to variation of parameter values within the range given 

iri the table 

Recent changes in the tobacco industry have caused a 

decline in the cost share of domestic tobacco in US 

cigarettes Recent evidence has confirmed the price sensitivity 

of tobacco use to price and d relatively low response of 

tobacco production costs lo quantity shitts [7] These param 

eter values are different from those used by Sumner and Wohl 

genant based on 1982 information The recent period of 

changing tobacco policy has provided better evidence 

supporting a policy response elasticity in the range of 10 but 

ttie whole positive range from 0 to m is included in the table 

Table 3. Parameters Used in the 

Equilibrium Displacement Model, Shares 

and Elasticities 

Symbol Definition Value 

(Source) 

Domestic wholesale price elacticit) 

of demand for US cigarettes [I 81 

Exporl price elasticity of demand 

lor US cigarettes [l] 

Ouanlily share of the domestic 

market in US cigarette output [4 

(Table l)] 

Share 01 domestic tobacco in 

wholesale level costs of Cigarettes 

[4 (Table 15 & IS)] 

Share 01 cigarene paper in whole 

sale level costs of cigarettes [9j 

Share of lederal excise tax in 

wholesale level costs of cigarenes 

[4 (Table 5)] 

Share 01 all other costs in whole 

sale level of costs of cigarettes 

(lrom above sum of all costs = 

10) 

Domestic output constant demand 

elasticity for US tobacco llld =

airlalid 1x1 

The above implies a,1,1=15 

Export demand elasticity lor US 

tobacco 181 

Ouantity share of domestic market 

in demand for US tobacco [4 

(Table E)] 

Ouota policy response elasticity 101 

the US Tobacco Program [81j 

JRange) 

03 

(02 05) 

30 

(10 50) 

088 

(085 091) 

0 07 

(005 010) 

0005 

(0003 0010) 

0 2.3 

(020 025) 

0 70 

(064 075) 

10 

(05 15) 

(7 20) 

20 

(1 0 50) 

06 

(05 07) 

10 

(0 ml 

11 
Table 3. (Continued) 

Symbol Definition Value 

(Source) 

Elasticity of marginal costs of 

tobacco production with respect to 

quantity shifts [E] 

Implicit or explicit cost share of 

quota lease in tobacco production, 

burleylflue-cured [8.4 (Table 33): 6 

(Table 34)] 

Cost share of labor in tobacco 

production burleyifluecured [4 

(Table 33); 6 (Table 34)] 

Cost share of land in tobacco 

production burlqtflue-cured 

(telephone response W.D. Toussaint, N.C. State Univ.) 

Cost share of management in 

tobacco production burleyfiluecured [4 (Table 33)] 

(Range) 

0.2 

(0.1, 0.4) 

0.1 510.2 

(0.1, 0.3) 

0.40.2 

(0.3.0.51 

(0.15.0.25) 

0.015/015 

(0.01, 0.02) 

0.0710.07 

(0.05. 0.10) 

12 
I 5mBaseline Values for Shifts 

in Exogenous Variables 

- 

Table 4 repeats Table 1 but adds the assumed values for 

the proportional changes indicated in the table The baseline 

values are not those considered most likely Rather they are 

values chosen to reflect an example impact on the tobacco 

industry These values must be considered together with the 

shares in Table 3 to indicate their general expected impact 

For example even though a 50% increase in paper costs 

could occur cigarette paper has such a trivial share in all 

costs that the proportional impact on cigarette costs and 

quantities is very small The big factor for the tobacco 

production industry is the value of - 0 10 for ED,* This 

exogenous ten percent decline in tobacco per cigarette can 

by only partially ottset by price reductions and substitutions 

and accounts for most of the declines in tobacco quantity 

and revenue reported below 

Tab1 4. Example Baseline Values for 

Exogenous Variables 

Symbol Definition Value 

(Source) (Rang e ) 

EDLd Proportional change in domestic -001 

demand for cigarettes 

demand for cigarettes 

tobacco per cigarette 

cost per cigarette 

cigarette costs per cigarette 

Proportional change in all ciga 

rette costs 

EC = aldED,* + akEK + 

aJM 

ED,, Proportional change in export -001 

ED,* Proponional change in domestic -010 

EK Proportional change in paper +050 

EM Proportional change in all other 1002 

EC 

+000725 

~~ ~--~ ~ ~~ - 

“These pielimlnaiy values are example ieasihle values cnosen to indicale 

potenbal impac! in the domestic tobacco mdustry Stephen Weber a! NBS 

provided gurdance in !he% choices 

13 

6m~hanges in the I Tobacco Industry from 

Cigarette Modifications 

Tile model allows the calculation 01 the impacl of cigarette 

modifications on various prices. quantities. incomes and other 

tobacco industry variables Initial values from Table 2. pararneter values from Table 3 and baseline exogenous shifis irom 

Table 4 are used to produce the results in Table 5 It should 

be stressed again that these do not reflect the most likely 

sceriario Notice that allowing Ihe quota policy response 

elasticity to equal 10 implies that the shift back in the derriarid 

lunction lor tobacco has equal negative propo~ional effects on 

lobacco price and quantity 

15 
Table 5. Results of the Example Baseline Values for Exogenous Variables for 

Proportional and Real Changes in the Tobacco Industry Variables 

Domestic tobacco price -0.028 - $0 043ilb. 

Domestic tobacco quantity -0.028 -42 mil. Ibs. 

- 16,8 mil lbs. 

flue~cured quantity -25.2 mil. Ibs 

- $125.4 million 

-. $51 .2 million 

flue~cured revenue - $75.3 million 

- $0 03511b. 

- $64 4 milllon 

-$25.7 million 

flue-cured lease income -$38.6 million 

- $1 7 6 million 

burley labor income -$7.6 million 

-$lO.l million 

-$0.8 million 

-$0.3 million 

-$0.5 million 

Farm management returns -$4.2 million 

-$I .7 million 

flue~cured management returns -$2.5 million 

rent) -$10.1 million 

burley surplus -$4.2 million 

flue-cured surplus -$5.9 million 

burley quantity 

Tobacco revenue 

burley revenue 

Tobacco quota lease rate 

Quota lease income (L,*Q,) 

burley lease income 

Labor income or cost 

flue-cured income 

Land income or cost 

burley land income 

flue-cured land income 

burley management returns 

Tobacco producer surplus (economic 

- 0 055 

-0.118 

-0.143 

0.028 

~0.028 

0.028 

16 
I 7.conclusion 

This report tias provided estimates of the effects on the 

domestic tobacco growing industry due to cigarette rnodifica 

tions to reduce their ignition propensity. An economic model of 

the loghiear equilibrium displacement form tias been devel~ 

oped and this report has described the inodel and its assuinp 

lions Tables 2. 3 and 4 provide background information and 

sources that are used together with the model to produce the 

results in Table 5 This table provides preliminary estimates for 

the impact on changes iri the price and quantity of both major 

types of tobacco affected. Estimates of changes in income are 

provided separately lor revenue generated from quota. land 

farm laboi and farrii rrianagement 

17 

I 8m~eferences 

[i] Sumner. Daniel A and Michael K Wohlgenaiit 'Effects ol 

an Increase in the Federal Excise Tax or Cigarettes 

American Journal ol Agricultural Economics. Vol 67 No 

2, May 1985 

Chase Econometrics. The Economic Impact 01 Ihe 

Tobacco Industry on the United States Economy iri 1983 

Bala Cynwyd Pennsylvania, 1985. 

[3] Sumner Daniel A, 'Substitutability for Farrn Commodities 

The Demand for U S Tobacco in Cigarette Mariufac 

turing.' American Journal of Agricultural Economics V 

69, No 2, May 1987. 

U S. Department of Agriculture. Economic Researcti 

Service. National Economics Division Tobacco Outlook 

and Situation Report. Washington D.C.. September 1986 

[5] U.S. Department of Agriculture Economic Research 

Service National Economics Division 'Effects ol 

Terminating Lease and Transfer 01 Flue~cured Tobacco 

Quotas and Allotments " Undated manuscript received 

from Verrier Grise. 1986. 

[2] 

[4] 

[6] U S Depannient 01 Agriculture. Ecoiionilc Researcti 

Service, National Economics Division Tobacco Outlook 

arid Situation Report Washington D C. Marcti. 1985 

171 Sumner Daniel A. 'The Budget Costs ol a 'No Net Cost 

Tobacco Program ' Current Issues iri Tobacco 

Economics Section 2. Tobacco in the Future Ecoriorriic 

Papers given at the 32nd Tobacco Workers Conference 

January 1987 Farrell Delman. ed with the assistarice 01 

tion. New York July 1987. 

Tobacco Program. An Analysis ol Deregulatioii Americari 

Enterprise lristitute Washington. D C . 1986 

191 Lago, Armando. The Structure of Costs iii the Cigarette 

Industry Undated drdtt copy of Chapter 2 in a report 

provided by the National Bureau of Standards. December 

1986 

Dolores Blakeney-Collin The Tobacco Merchants As, rocia 

[R] Sumner. Daniel A, and Juliaii M Alstori Eiiects ol tile 

19 

Economic 

Sector Data 

for Modeling 

the Impact 

of Less 

Ignition-Prone 

Cigarettes 

The Employment 

Implications 

of Proposed 

Cigarette Design 

Modifications to 

Reduce Cigarette 

Ignition Propensity 

DANIEL GREENBERG 

Department of Economics 

University of Maryland 

21 

- 

Contents 

The Employment Implications of Proposed 

Cigarette Design Modifications to Reduce 

Cigarette Ignition Propensity, 

David Greenbery. ................ 

1. Introduction.. ............... 

2. Issues and Methodology. . .. 

3. Cigarette Manufacturing Sector. .... 

4. Tobacco Farming Sector. ....... 

5. Tobacco Auction Warehousing 

Sector .................... 

6. Other Support Industries ..... 

7. Wholesaling ....... ...... 

8. Retailing. ............... 

9. Conclusions ............... 

.. 

... .21 

. . 25 

. . 27 

.. .31 

.. .37 

. . 41 

. ..43 

. .45 

.. .47 

. . 49 

- 

List of Tables 

Table 1. 

Table 2. 

Table 3. 

Table 4. 

Table 5. 

Hours of Labor Used to Grow 100 

Pounds of Burley Tobacco In 1976 .... 38 

Hours of Labor Used to Grow 100 

Pounds of Burley Tobacco in 1979 ... .38 

Effects of Design Modifications on 

Tobacco Farm Employment ....... .39 

Effects of Design Modificatlons on 

Tobacco Auction Warehousing 

Employment ................. 42 

Summary of the Estimates of the 

Direct and Indirect Employment 

Effects of the Proposed Cigarette 

Design Modifications ...... ... .50 

23 

I 1 .Introduction 

- 

lhe [purpose ol tliis repori IS to assess ttic potential employirli.iit effects of four proposed changes in cigarettes lo reduce 

their propensity to ignite inattresses and upholstery The four 

proposed cigarette design modifications arc as follows 

The addition of a chemical addilive to cigarette tobacco 

blend 

liicreasing the percentage of expanded tobacco used in 

~~yarette tobacco blend 

Decreasing the cigarettes circiiinferencc while at the same 

time increasing its length in order to rriainlain a constant 

ptiH count 

Doubling the weight of cigarette paper. 

As will be seen. eacti 01 these design inodificatioris wdtl 

iidvc direct effects on employment by changing tile cigarette 

manufactirriig process and the dernand for variohrs inputs (tor 

example. tobacco. paper and chemicals) used 111 producing 

cinaiettes. In addition, and possibly more importaritly. the 

design modifications may cause indirect erriployrncnt effects by 

changing the taste or other characteristics 01 cigereltes arid 

consecjueritly, influencing corisurner demand lor tlierri 

ilic analysis of the direct and indirect erriplnym 

tlx cigarctte design niodifications contained im Itii 

he used as tiipiit to a heriefit~cost study coriducteri by llic 

Applied Economics Group of the Mattiernalical Analysls D,v! 

sioii of the Natiorial Bureau of Standarcis The estimate$. 

reported here shoirld not he viewed as [precise Ttii: d,& 11:) 

'101 exist to suppori suck precisiori arid. iii any weiil. 'ori 

of adjirstrrients by ecoiiomic actors lo proposed changos I 

policy are inevitably Iizartious Instead llie estiniatos ikiltl 

he iorisidered indicators 01 the likely order of rnayriitiirle 01 tk 

ellecis 01 Ilhc proposed design modificatioris or einployrnen: 

discusses several yerieral issues and outliries the basic. 

mctliodological approacti that will be used Ttien. potential 

employment effects of lhe proposed desiyn rriodlficalioii:: oi: 

various sectors oi the cconoiriy cigarellc rri~iriiiia(:tiiriii~~ 

tobacco farniinr] tobacco diictior! warehousing: ir!diistries that 

Drovide inputs to the cigarette manufacturing process. sucti ni 

paper and chemical mariufactiiring: cigarette wliolesaling iirid 

cigarette retailing are eacti considered in turn Both cllrecl 

and inclireci effects 011 crnployment 117 hesc sectors will bi: 

examine0 lii ;idditiori. wlieri approlirtale. corisicler;rtcoii wi11 tr 

qveii to whe!lirr the ernployrrieit ctfects are likely Iu mIl,,cri, f: 

wage levels arid to impose hardships on lhe allcctecl workcrs 

A hrief final section coritains a siiriimary of ttie repurt's m;i1or 

This report is organized as Iollows lhe next seciion 

IIildiiliJs 

25 

I 2dssues and Methodology 

Predicting the employment implications of the proposed ciga~ 

rette design modifications listed in the Introduction raises 

several difficult issues. These issues are discussed in this 

section and our treatment of them is briefly described Greater 

detail is provided. as appropriate, in later sections of the report 

A natural stalting point for an analysis of the employment 

impacts of proposed policy changes is to determine current 

employment levels in the economic sectors likely to he 

affected This is not as straightforward as it may seem on first 

blush. Although government statistics that appear in such 

publications as the Census of Agriculture. the Census of 

Manufactures. and Employment and Earnings are often useful 

for this purpose, specific breakdowns for certain relevant 

economic sectors ~ for example, cigarette paper manufac~ 

turing and tobacco auction warehousing ~~ are not reported in 

these publications. In addition, in some economic sectors ~ 

for example. tobacco farming and tobacco auction ware^ 

housing ~ extensive use is made of seasonal and part~time 

workers For purposes of this analysis, it is important that 

employment levels be stated in terms of fullLtime, yearwound 

equivalents. Fortunately, several of the employment level esti~ 

mates required to augment the statistics reported in govern^ 

ment publicatlons can he found in two fairly recent 

examinations of the tobacco industry's contribution to the 

economy; one of these studies appears in a 1979 report by 

the Wharton Applied Research Center and Wharton Econometric Forecasting Associates and the other in a 1985 report 

by Chase Econometrics. When necessary, the employment 

level statistics found in the sources mentioned above have 

been supplemented by information provided in reports of 

several special government studies and by persons with expert 

knowledge of the various relevant economic sectors All the 

employment statistics that appear in this report have been 

adjusted to reflect 1986 levels on the basis of the data on 

trends in cigarette output. which are found in the October 

1986 issue of Smith Barney Researchs Tobacco Monthly 

rette design modifications on employment levels can usefully 

be divided into direct and indirect effects. One type of direct 

effect results from changes within the cigarette manufacturing 

industry itself. Examples of such changes include the produc~ 

tion of more expanded tobacco or the use of a new chemical 

additive Both of these modifications require additional workers 

It was suggested in the Introduction that the impact of ciga~ 

Another type of direct effecl results when the desigri modilica 

tioiis change inputs that cigarette manufactures purchase from 

other industries (for example. tobacco or paper) and labor 

requirements in these industries are, as a consequence 

increased or decreased Indirect elfects would occur if thc 

design modifications affect consumer demand lor cigarettes 

and. as a result. change the number of workers reqirired to 

produce the inputs used in cigarettes and to manufacture and 

sell cigarettes Since it seems reasonable to presume that ciga~ 

rette firms presently produce as appealing a product as they 

can, we will assume that the design modifications will tend to 

reduce cigarette sales and, consequently, cause employment 

levels to fall 

If cigarette sales decline. employment levels could also he 

potentially reduced through so-called "multiplier effects' These 

multiplier effects would arise because those whose iricomes 

are adversely affected by the reduced consumption of 

cigarettes (for example. tobacco farmers and cigarette 

company stockholders and employees) have less money to 

spend on the various goods and services they typically 

purchase. As a result, employment levels in industries that tiave 

little to do with the production 01 cigarettes (for example. 

banking and automobile manufacturing) could fall Persons 

who derive their incomes from these industries would then also 

have to reduce their expenditures, and the process would 

continue. Fortunately, however these negative multiplier etfects 

are likely to be more or less fully offset by positive multiplier 

effects These latter effects would occur because consumers 

who reduce their expenditures on cigarettes would be 

expected to increase their spending on other items thereby 

stimulating employment in sectors of the economy producing 

these items Since, on net. positive and negative multiplier 

effects that result from changes in consumer expenditure 

patterns should roughly cancel out. we shall ignore these 

effects in the remainder of this report. 

In assessing both the direct and indirect effects of the 

proposed design modifications on employment levels. it IS 

important to recognize that these changes will not take place 

instantaneously nor necessarily smoothly. For example. each of 

the design modifications directly rcqulre alieratlons In or adcl,~ 

lions to capital equipment. and these efforts will employ addi~ 

tional workers who will not be needed orice this transitional 

phase is completed. Moreover, the design modifications are 

initially likely to reduce efficiency levels in producing cigarettes 

thereby engendering various adjustments throughout the 

2? 
production process as manufacturing firms attempt to offset 

these losses in efficiency Although most of these changes can 

probably be compieted Over the space of a relatively few 

years, the design modifications may also cause declines in 

consumer demand for cigarettes that continue to take place for 

a generation or more. The reason for this is that many current 

smokers are addicted to cigarettes and, consequently, may not 

modify their consumption patterns wen if the taste or other 

characteristics associated with cigarettes change. However. 

these changes could exert considerable influence over young 

persons at the time they decide whether or not to take up 

smoking. In this report, we shall emphasize the difference 

between current employment levels and employment levels in 

the new steady state, once all the necessary adjustments have 

been completed. Thus, we ignore changes in employment 

requirements while the transition to the new steady state is 

taking place. 

Estimates of many of the direct effects of the design modifications on employment levels can be based on straightforward 

engineering projections of changes in the number of persons 

required to petform the potentially affected manufacturing functions - for example, the number of workers required to 

produce a given amount of chemical additive or the additional 

workers needed to expand a given amount of tobacco. Projections of this type were obtained on the basis of discussions 

with persons with expertise in the pertinent industrial 

processes. 

design modifications on employment levels raises more 

complex problems than does obtaining estimates of the direct 

effects. As noted above, the indirect employment effects would 

be engendered by reductions in the demand for cigarettes by 

consumers. This demand reduction may, in turn, cause the 

producers and sellers of cigarettes to lower prices to 

consumers, thereby partially offsetting the initial reduction in 

demand for cigarettes. Obtaining estimates of responses by 

buyers and sellers in the cigarette consumer market to each Of 

the design modifications is far beyond the scope of this study, 

and, in fact, involves research being conducted elsewhere as 

part of the National Bureau of Standard2 overall benefit-cost 

project. Since this research is not yet complete, we shall, for 

illustrative purposes only, examine the decrease in employment 

that would result were cigarette output to fall by 5 percent 

once the consumer market fully adjusted to a reduction in 

demand by smokers. If it were later determined that a particular design modification would actually cause a smaller or 

larger fall in cigarette output than 5 percent. the indirect effect 

estimates found in this report should, of course, be appropril 

ately adjusted. For example, if cigarette output were to fall by 

2.5 percent, instead of by 5 percent, the resulting employment 

effects should only be around half as large. 

The employment effects of a 5 percent reduction in cigarette 

output would not, of course, be limited to the employees of 

cigarette firms These firms would not only require less labor, 

but also less of the materials needed to produce cigarettes - 

tobacco, paper. electricity, and so-forth. Moreover. le= tobacco 

would be stored in warehouses and sold in auctions and fewer 

cigarettes would be sold by wholesalers and retailers. All these 

changes may potentially reduce labor requirements 

For purposes of this report, it will be assumed that a 5 

percent reduction in cigarette output would be associated with 

a 5 percent decline in cigarette sales and would cause a 5 

Unfortunately obtaining estimates of the indirect effects of the 

percent reduction in each of the materials purchased by cigarette manufactures. This assumption may be subjected to 

several different criticisms. First, if cigarette output and, hence. 

the scale of production were reduced, the mix of inputs used 

to produce cigarettes might change. However, unless the 

design modifications being considered caused very large 

decreases in the output of cigarettes - much larger than 5 

percent - this Scale effect is likely to be of minor importance. 

Moreover, the scale of production should have little influence 

on the mix of many of the materials used to produce 

cigarettes - for example, tobacco, paper, material for filters, 

and so forth - which tend to be more or less used in fixed 

proportions. 

A second possible critlcism of the assumption is that a 

decrease in demand for various cigarette inputs would induce 

the producers of these inputs to lower their prices, mitigating 

the original demand decrease to some degree. Except 

possibly for tobacco, this effect would appear to be quite 

minor Many important cigarette inputs - such as paper, packaging materials, chemicals, and electricity - are obtained from 

large firms where administrative pricing prevails and purchases 

by cigarette companies comprise a relatively small fraction of 

total sales. On the other hand, U.S. cigarette firms are the 

dominant buyer of domestically grown tobacco. Consequently, 

any changes in the demand for tobacco by these firms could 

have important effects on tobacco prices. Moreover. tobacco 

production in this country is sobject to federal quotas and 

support prices that could effectively be used to offset reductions in demand for tobacco by cigarette firms. 

A third criticism is suggested by the possibility that a 5 

percent reduction in cigarette output could be disproportionately caused by decreases in the sale of U.S. produced 

cigarettes in foreign markets. If this were the case. sales of U.S. 

cigarettes would fall by more than 5 percent in foreign markets 

and by less than 5 percent in domestic wholesale and retail 

markets. Since only about one of every ten cigarettes 

produced in the United States is sold in a foreign market, 

however, this possibility is likely to be relatively unimportant 

unless there is an enormous divergence between foreign and 

domestic consumers in their demand responses to the cigarette design modifications. 

In summary then, it would seem that the assumption that a 

5 percent reduction in cigarette output would be accompanied 

by a 5 percent decrease in input purchases by cigarette firms 

and by a 5 percent decline in domestic cigarette sales is a 

reasonable approximation, except possibly for tobacco. The 

more complex relationship between cigarette and tobacco 

production is presently being modeled elsewhere as part of 

the National Bureau of Standards’ benefit-cost project. And the 

results of this modeling effort can later be used to make 

appropriate modifications to the 5 percent approximation being 

used here. In Section 4, we briefly indicate the ways in which 

these modifications would affect the results reported here. 

Given a 5 percent reduction in cigarette output and sales, 

and in the purchases of materials used to produce cigarettes. 

the relevant question from the perspective of this study 

becomes: What will be the effects on employmenV To answer 

this question, we utilize a simple analytic devise: the elasticity 

of employment with respect to output. In algebraic terms, this 

parameter may be defined as follows: 

di = EEilEQi 

28 
where d is the elasticity of employment with respect to output, 

EE is the percentage change in employment, EO is the 

percentage change in output, and i denotes a specific 

economic sector of interest (for example, cigarette manufac~ 

turing, cigarette paper manufacturing. or cigarette wholesaling). 

The specific value of the elasticity parameter indicates the 

relationship between a change in output in a pertinent 

economic sector and the resulting change in employment 

within that sector For example, a value of 1 would imply that a 

decrease of (say) 5 percent in cigarette manufacturing output 

or in the purchase of an input used in producing cigarettes or 

in cigarette sales at the wholesale level would cause a 5 

percent reduction in employment within that economic sector. 

Similarly, an elasticity value of 2 would imply that a 5 percent 

reduction in output in a given economic sector would he 

associated with a 10 percent decline in employment within the 

sectoi An a value of zero would imply the absence of any 

effects on employment as a result of changes in output Thus, 

once the elasticity value is known for a particular economic 

sector. the effects of a given change in output on employment 

levels within that sector can readily be determined. The 

elasticity value will. of course, differ among the various 

economic sectors likely to be affected by cigarette design 

modifications. Thus, the techniques used to derive the value for 

each sector will be described in the individual section on that 

sector 

Reductions in employment will usually put downward pressure on wage rates in the affected labor markets. If, as a 

result. wages actually fall in these labor markets, the initial, first^ 

round effect on employment may be partially offset. Reductions 

in wage levels that are caused by the cigarette design modifi~ 

cations and any resulting mitigation of first-round employment 

effects are of considerable interest, and will be examined for 

specific economic sectors later in this report At this time, 

however, it may be useful to make two general points. First, 

downward pressure on wages is likely to be minimal if - as, 

in fact, is generally the case ~ the adversely affected workers 

account for only a small fraction of total employment in a 

particular labor market, Second, wage effects will not occur at 

all in labor markets where unions or minimum wage legislation 

keep wages from falling. 

One of the major reasons for examining the employment 

impacts of policy changes is to assess any hardships that may 

result for the families of the affected workers. We shall conduct 

such assessments for several groups of workers later in this 

report. It will be pointed out that adverse effects are likely to 

be minimized if the transition to a lower employment level is 

lengthy. In such a situation. which, as suggested earlier, is 

likely to be the one resulting from the cigarette design mod& 

cations, it may be possible to reach the lower employment 

level largely through attrition, rather than through permanent 

layoffs. Still. some workers are likely to lose their lobs as a 

consequence of the design modifications. The extent to which 

the families of these workers undergo hardships as a result 

depends on the contribution that these workers make to total 

family income, the length of time the workers are unemployed, 

whether the workers receive transfer payments while unem~ 

ployed. and whether the workers must accept new jobs that 

pay a lower,wage than those they lost. This, in turn, is a func~ 

tion of the demographic characteristics of the workers (for 

example, their age, sex, and marital status), the specific human 

capital they have acquired on their current jobs, whether their 

current wage is above that received by other workers with 

similar characteristics (for example, as a result of union 

membership), whether they work in small geographically 

isolated labor markets. and so forth. 

29 

I 3mCigarette Manufacturing 

Sector 

According to Employment and Earnings, a periodic statistical 

report published by the U.S. Bureau of Labor Statistics. a total 

of 45,000 workers are currently employed in cigarette manufac~ 

turing Approximately 5.000 additional workers are employed in 

stemming, redrying. and storing the tobacco used by U.S. 

cigarette manufactures. Oi this total of 50,000 workers, about 

36.000 (72 percent) are classified as production workers, with 

the remaining 14,000 (which includes supervisors and ad minis^ 

trators, marketing and research personnel. and engineers) clas~ 

sified as non~production workers. 

proposed cigarette design modifications would have both direct 

and indirect effects on the size of the work force in the ciga~ 

rette manufacturing sector Each of these two types of effects 

will be examined separately in this section. 

As indicated in the first two sections of this report the 

Direct Effects 

In this subsection we shall briefly discuss the potential direct 

employment effects of each of the four proposed cigarette 

desiqn modifications 

Addition of Chemical Additive to Blend 

This design modification involves the addition of a chemlcal 

additive to the tobacco blend used in cigarettes, The specific 

additive under current discussion is called "Expantrol." ex pan^ 

trol is a silica gel produced by 3~M Company. In the form it is 

now produced, it is not clear how well Expantrol adheres to 

tobacco To the extent it does not, its addition to the tobacco 

blend would cause major production problems in cigarette 

manufacturing. Our employment estimates are based on the 

assumption that these production problems can be overcome 

or alternatively, that a suitable substitute can be found for 

Expantrol that does not cause production problems (for 

example. some sort of water soluble chemical). It is also 

assumed ~ as, in fact, appears to be the case 

use of either Expantrol or a water soluble chemical would not 

alter the amount of tobacco use per cigarette. 

that the 

Discussion with cigarette company representaltves indicated 

that were Expantrol or some alternative added to the tobacco 

blend. 4 to 6 additional workers would probably be reqirired 

per shift at each cigarette manufacturing plant. Since there are 

11 major cigarette plants in this country. each of which usually 

olxrates with three shifts. it would appear that a total 01 132 to 

198 additional workers would be required in the cigarette 

manufacturing sector These additional workers would mainly 

corisist of the operatives responsible for actually adding the 

CheNliCal and quality control. maintenance. and cleaning 

Dersonnel 

Increased Use of Expanded Tobacco 

The intent of this design modification is to increase the ariioml 

of expanded tobacco used in each cigarette. thereby 

increasing the rate at which cigarettes burn. The exact amount 

by which tobacco can he expanded varies with type of 

tobacco and the process that is applied. At maximum, 

tobacco can he expanded to about twice its original volume 

and. for simplicity. we shall assume a two~to~one ratio This 

would imply, for example, that if Ihe amount of expanded 

tobacco in a cigarette was increased by 10 percentage points 

in terms oi volume, the weight of the tobacco in the cigarette 

would decline by 5 percent Similarly, if the increase was 20 

percentage points. tobacco weight would fall by 10 percent. if 

the increase was 30 percentage points. tobacco weight would 

fall by 15 percent. and so torth 

To examine the direct employment effects of an increased 

use of expanded tobacco, we shall assume that no loss of 

productive efficiency in the manufacturing process results. This 

may not necessarily he the case, however, if the increase was 

very dramatic. A cigarette that consisted mainly of expanded 

tobacco would he more difficult to pack than a typical ciga 

rette and the cigarette making machines that produce it mlght 

have to run at a slower rate. At present, no commercially sold 

U.S cigarette brand consists of more than 50 percent 

expanded tobacco 

on the further assumption that as a result of adopting the 

expanded tobacco design modification the volume of 

expanded tobacco found in a typical cigarette would increase 

by 20 percentage points Thus, ior example 11 a particular 

The employment effect estimates presented below are based 

31 
brand of cigarettes presented consists of 25 percent expanded 

tobacco and 75 percent non-expanded tobacco, after the 

change, it would consist of 45 percent expanded tobacco and 

only 55 percent non-expanded tobacco. Obviously, if the 

increase was 30 percentage points, rather than 20, the 

employment effects would be approximately 50 percent larger 

than those reported here. Or. alternatively. if the increase was 

only 10 percentage points, the size of the employment effects 

would be only about half as large 

Increasing the amount of expanded tobacco in cigarettes 

would have two direct employment effects, and these work in 

opposing direction. First, more tobacco will have to be 

subjected to the expansion process and this will require additional workers. Given our assumptions that the volume of the 

newly expanded tobacco would be doubled and that the 

volume of expanded tobacco in cigarettes wwld be 20 

percentage points higher than at present, an additional 10 

percent of the tobacco used in cigarettes would have to be 

subjected to the expansion process. Table 13 of the October 

1986 issue of Tobacco Monthly indicates that the average U.S. 

cigarette uses ,00176 pounds of tobacco, while Table 6a of this 

publication reports that 658.5 billion cigarettes were produced 

in the United States in 1986 This implies that U.S. cigarettes 

contained 1.16 billion pounds of tobacco in 1986 and, hence, 

that meeting the increased demand for expanded tobacco 

would require that an additional 116 million pounds of tobacco 

be expanded. 

Relatively large existing expansion facilities can expand 6.000 

pounds of tobacco an hour 01. operating 24 hours a day, 5 

days a week, about 36,000,000 pounds a year. A small expansion facility can expand 1,500 pounds of tobacco an hour or 

about 9,000,000 pounds a year Thus, the increased need for 

expanded tobacco could be met by 13 of the smaller facilities 

or, alternatively, by a combination of 3 of the larger facilities 

and 1 of the smaller facilities. Based on experience from 

running existing expansion facilities, cigarette company 

representatives estimate that if 13 small facilities were used, 

624 additional workers would be required; but if 3 large facililies and just 1 small facility were used, only 228 additional 

workers would be required. Since there are 11 major cigarette 

manufacturing plants, and since it is usually more efficient to 

integrate the operations of expansion facilities and manufacturing plants, the actual increase in worker requirements would 

probably approach the larger of the two numbers reported 

above. 

As indicated earlier. adoption of the expanded tobacco 

design modification would have a second direct effect on 

employment in the cigarette manufacturing sector This effect 

occurs because expanded tobacco occupies more space than 

unexpanded tobacco. Hence. in terms of weight, the total 

amount of tobacco used in a typical cigarette would fall. As a 

result, fewer workers would be needed for the processes that 

tobacco must undergo before it is blended (except, of course, 

to operate expansion facilities). Among these processes are 

stemming, redrying. moving tobacco from one place to 

another, storing tobacco, maintaining inventory control over it. 

In addition, the equipment used in these operations must be 

cleaned and maintained. Although precise figures are not available, discussions with industry representatives suggest that, 

perhaps, about 10,000 workers are presently employed by 

these operations. Around half of these 10,000 jobs are located 

at stemming and redrying facilities, with the other half located 

within the cigarette manufacturing plants themselves. 

Although, according to our assumptions the amount of 

tobacco subjected to these operations would diminish by 10 

percent, the number of workers employed by the operations 

would probably fall by substantially less A few stemming and 

redrying facilities - facilities that tend to be relatively small and 

located separately from cigarette manufacturing plants - might 

be shut-down altogether; but the number of workers required 

to handle tobacco within cigarette manufacturing plants is to 

some extent determined by the equipment needed for this 

purpose and, consequently, cannot fall below some minimal 

threshold. 

Although exact estimates cannot be made, in our judgement, a 10 percent reduction in the amount of tobacco used 

by the cigarette manufacturing sector would result in a labor 

savings of, perhaps. 5 to 7 percent in performing the affected 

operations ~ or around 500 to 700 jobs - an amount that 

more or less offsets the additional workers required to expand 

greater amounts of tobacco. Thus, it seems reasonable to 

conclude that, on net, the direct employment effects of the 

expanded tobacco design modification on the cigarette 

manufacturing sector could be either positive or negative. 

However, this net effect is likely to be small in overall magnitude, changing overall employment levels by probably no more 

than 100 to 200 workers. 

Decreasing the Circumference of Cigarettes 

Under this design modification, the circumference of cigarettes 

would be reduced from the current typical level of 25mm to 

some as yet unspecified level mnging between 24mm and 

18mm. At the same time, a constant puff could would be 

maintained by increasing the length of the cigarette. 

As detailed in a paper by Armando Lago (see Report on 

Cigarette Modification Costs to the Gchnical Study Group on 

Cigarette and Little Cigar Fire Safet)! Ecosometrics. January 

1987) changes in cigarette circumference would necessitate 

changes in the most important cigarette manufacturing 

machinery - including cigarette makers, cigarette packers, 

and plug makers. However. once these modifications were 

completed, no additional workers should be required to 

operate and maintain these machines, assuming that the 

modifications do not affect production efficiency. 

Another implication of the reduction in cigarette circumference - and one that would have a direct effect on employment within the cigarette manufacturing sector - is that the 

amount of tobacco and paper required to produce cigarettes 

would fall. For example, according to Table 1 in Lagds paper, if 

the circumference of a cigarette were reduced from 25mm to 

22mm. the weight of the tobacco used would decrease by 

14.3 percent and the weight of the paper used would fall by 

2.1 percent. If. alternatively, the circumference were reduced to 

18mm. the decrease in tobacco weight would be 34.9 percent 

and the decrease in paper weight wld be 9.0 percent. 

This implies that fewer workers would be needed within the 

cigarette manufacturing sector to perform the processes that 

tobacco must undergo before it is blended (for example. stem^ 

ming. redrying. moving and inventorying tobacco, expanding 

tobacco, and cleaning and maintaining the equipment needed 

32 
to perform these functions) and to handle cigarette paper 

before it reaches the cigarette making machines. However 

according to discussions with industry representatives, the 

effect of the reduction in the weight of cigarette paper on 

employment levels would be trivial, involving no more than a 

dozen jobs industry-wide even if circumlerence of cigarettes fell 

to 18mm. The employment effect of the reduction in the 

amount of tobacco used in producing cigarettes. on the other 

hand, could be quite appreciable. As suggested during our 

discussion of the expanded tobacco design alternative. a 10 

percent decrease in the tobacco used to produce cigarettes 

could result in the elimination of, perhaps, 500 to 700 jobs, 

Simple extrapolation implies that the 14 percent decrease in 

tobacco associated with reducing cigarette circumference to 

22mm would cause employment to fall by between 700 to 

1,000 workers and the 35 percent decrease associated with 

reducing cigarette circumference to 18mm would cause 

employment to fall by between 1.800 and 2,500 workers. 

ment reductions should, in principle, be viewed as first-round 

effects In Section 2, it was suggested that if the amount of 

tobacco used in cigarettes decreased, the price of tobacco 

might lall. This, in turn, would reduce costs to cigarette firms. 

These firms might pass some of these savings on to 

consumers, stimulating the demand for cigarettes and, there^ 

fore, employment within the cigarette manufacturing sectoi As 

mentioned in Section 2, these possibilities are being modeled 

elsewhere as part of the National Bureau of Standard* benefit^ 

cost analysis. However, considerable existing evidence 

suggesting that the price elasticity of demand for cigarettes is 

quite small in absolute magnitude‘ would appear to imply that 

it is highly unlikely that the modest decrease in cigarette 

prices. which might result from reductions in demand for 

tobacco of the sort we are discussing, would have very much 

effect on employment levels in the cigarette manufacturing 

sector. 

It might be useful to mention at this point that these ern ploy^ 

Doubling the Weight of Cigarette Paper 

The final design modification involves doubling the weight of 

the paper used to wrap cigarettes, while adjusting the papeis 

porosity to maintain a constant puff count. Cigarette paper is 

received by cigarette manufacturing iirms on a roll called a 

“bobbin.” At present, one bobbin can be used to wrap 100,000 

cigarettes. If cigarette paper weight were doubled, the weight 

of each bobbin would probably be held constant and, consequently, cigarette firms would require twice as many bobbins 

as they presently purchase. 

In examining the direct employment effects of doubling the 

weight of cigarette wrapping paper we shall assume that any 

potentially serious production problems can be overcome. At 

present, for example, it is not known whether the two edges of 

a heavier paper can be glued together as quickly and as well 

as the edges of the cigarette paper king presently used. If 

this bonding process took longer or the bonding did not hold, 

the production of cigarettes would be slowed. 

The most obvious effect on employment within the cigarette 

manufacturing sector that would result from doubling the 

‘See lor exarnpk, Dane1 A. Surnner and Mtctael K. Wohlgenanl, 

An Increase in the Federal Ornse Tax on cigaienes, American Journal 01 

Agricultural Economics. May 1985 

of 

weight of Cigarette paper is that about twice as many workers 

would be needed to unload the paper received at cigarette 

piants, prepare it lor delivery to cigarette making machines, 

and actually deliver it. A cigarette firm representative estimates 

that his company presently uses about 7 workers to perform 

these tasks lor an amount of paper required to wrap around 

50 billion cigarettes. Since 685.5 billion cigarettes were 

produced in the U.S. in 1986, this implies that fewer than 100 

paper handling jobs are currently needed industry-wide. Thus, 

doubling the weigh! of cigarette wrapping paper would require 

that no more than 100 additional such lobs be created. 

It was mentioned above that doubling the weight of cigarette 

paper would double the number of bobbins received by cigarette manufacturing plants. This would mean that the operators 

of cigarette making machines would have to change twice as 

many bobbins This. however, would not require that more 

operators be hired. It would simply mean that the work load of 

existing operators would be slightly increased and, as a result, 

these workers would receive a small raise in wages. However; 

every time a bobbin must be changed a very slight loss of 

production results. As a consequence, doubling the number of 

bobbin changes would lwer the industry’s current output level. 

However, this reduction would amount to something less than 

one billion cigarettes, a loss of output that cwld more than be 

replaced if only one additional cigarette making machine was 

put into operation. Thus, the increased number of bobbin 

changes would have only a negligible effect on worker 

requirements. 

Indirect Effects 

In this subsection, we examine the effect of a 5 percent reduc~ 

tion in the demand for cigarenes on employment within the 

cigarette manufacturing sector To do this, it is first necessary to 

discuss the value lor the sector of d. the elasticity of employment with respect to output. An instructive way to begin 

exploring this issue is to consider what sort of cigarene plants 

or parts of plants would be shut-down should cigarette output 

decline. It seems reasonable to anticipate that these would be 

among the least efficient, most marginal operations. Such oper~ 

ations. in turn, are likely to produce less output per worker 

than the more efficient ones that continue in production. 

Under the circumstances lust described, the value of d 

would simply equal the inverse of the ratio of output~per~worker 

at the remaining operations within the sector To see this, let us 

bnetly consider a completely hypothetical example For purely 

illustrative purposes, we shall assume that only half as many 

cigarettes are produced per worker at the least efficient cigarette plant in the industry as at the typical remaining plant. 

Hence, to produce a given amount of cigarettes, our hypothetical plant would require twice as many workers as is typical in 

the res! of the industry. Let us further assume that the low ef6 

ciency plant just happens to produce 5 percent of the total 

national output of cigarettes. If this low efficiency operation 

were closed, allowing cigarette output to fall by 5 percent, it 

follows that total employment at cigarette plants would 

decrease by 10 percent. Thus, for the illustrative situation just 

outlines, the value nl d would equal 2; that is, a 5 percent 

reduction in output would be associated with a 10 percent 

reduction in employment. 

33 
To obtain an idea of the variation in output~per-worker 

among cigarette manufacturing operations, we ideally would 

have liked to have divided the number of cigarettes produced 

at each cigarette manufacturing plant by the number of 

production workers employed at each plant. However, the information necessary to construct such a ratio is considered 

proprietary by cigarette manufacturing firms and is not available. Consequently, we constructed two alternative ratios, each 

of which is far less than ideal. The data used in constructing 

these two ratios appear below: 

Total 

Cigarette Total 

output Total Union 

(in billions) Employment -~ Membership 

Philip Morris 254.6 20,000 8,700 

R.J. Reynolds 205.0 14,542 7,000 

Brown & 

Williamson 78.1 5.776 1,450 

Lorillard 48.3 6,000 2,025 

American 45.3 7,250 1,725 

Liggeti - 296 ~ 1,970 865 

TOTAL 6609 56.538 21,765 

~ 

The first of the columns appearing above. which reports the 

total number of cigarettes produced by each of the six major 

U.S. cigarette firms during 1985. is used as the numerator of 

both ratios. The figures appearing in this column was obtained 

from the Maxweil Repon for February 3, 1986. 

The second column contains the denominator used to 

compute the first of the ratios. The total figure for the second 

column may he compared to the 45,000 workers that the 

Bureau of Labor Statistics reports as being employed in cigarette manufacturing. The data for the second column are 

based on employment figures for 1985 that were reported in 

the Djrectory of Corporate Affihations, which was published in 

1986 by the National Register Publishing Company. These 

data pertain to corporative subsidiaries and divisions that 

produce tobacco products. Since, at several firms, these 

tobacco products include cigars and chewing tobacco. as well 

as cigarettes, the total number of workers required to produce 

the cigarettes output listed in the first column IS overstated for 

some companies by an unknown amount. The figures for 

American and Lorillard are particularly suspected of being 

overstated. 

tion on the number of workers at each company who are 

members of the Bakery. Confectionery, and Tobacco Workers 

International. the major union in the cigarette manufacturing 

industry. This information, which is used as the denominator of 

the second ratio, was provided directly by the union. Since 

R.J Reynolds is the one cigarette manufacturing firm that is 

not unionized, the figure for Reynolds is a union estimate of 

The third of the columns appearing above contains informapotential union membership at the company In contrast to the 

second column, the third column provides an understatement 

01 employment at the tobacco manufacturing firms. This is true 

for at least four reasons First. the figures pertain only to 

production workers. Second, an unknown (but fairly small) 

number of production workers at each firm have chosen not to 

loin the union. even though they are covered by the contract 

the union negotiates. Third. most workers who are employed in 

stemming and redrying operations are not union members. 

although a few are. Fourth, at some companies, certain groups 

of skilled workers (for example, machinists and carpenters) 

belong to craft unions, rather than to the Bakery. Confectionery. 

and Tobacco Workers International 

The two ratios, which were constructed from the data just 

described. appear below: 

- 

Cigarette Cigarette 

Output Per Output Per 

Employee Union Member 

~__ (in millions) (in millions) - 

Philip Morris 12 7 29 3 

R J Reynolds 13 2 293 

Brown & Williamson 135 539 

Lorillard 81 23 9 

American 62 263 

Liggett - 150 ~ 34 2 

Average all firms 11 7 30 4 

As previously indicated, the denominator of the first of these 

ratios is overstated and the denominator of the second is 

understated. Since our primary interest is in how the ratios vary 

across firms, this would cause no problems if the errors in the 

denominators of the ratios were similar from one firm to the 

next. Unfortunately, however. there is no reason to think that 

this is the case Consequently, some of the interfirm variation in 

the ratios appearing above is attributable to true differences in 

output-per~worker among the firms, but some is almost 

certainly attributable to measurement error. Nevertheless, we 

can take some comfort. perhaps, in the fact that the two ratios 

imply very similar rank orderings among the six firms. 

Taking the ratios at face value, the one based on total 

employment suggests that average output-per-worker for the 

industry as a whole is 89 percent higher than for the lowest 

ranked firm (11.7 - 6.2). while the ratio based on union 

membership implies that average output~per-worker for the 

industry is 27 percent higher than for the lowest ranked firm 

(30.4 ~ 23.9). Keeping in mind that these measured differ^ 

ences in output-per-worker undoubtably overstate the true 

differences, it would appear that the value of d in the cigarette 

manufacturing sector is probably greater than 1, but well below 

2. For our purposes, we shall assume that the value of d 

equals 1.5, a value that in out judgment is likely. if anything. to 

exceed the actual value. 

34 
Given our assumed value for d and the fact that about 

50,000 workers are presently employed in the cigarette 

manufacturing sector, we predict that a 5 percent reduction in 

cigarette sales would cause employment in the sector to fall by 

3,750 workers 

Implications 

The preceding analysis suggests that, with the exception of 

changing the circumference of cigarettes, the direct employment effects of the design modifications are unlikely to increase 

or decrease the number of jobs within the cigarette manufac~ 

turing sector by more than a few hundred positions. Even the 

direct effects of the cigarette circumference modification are 

likely to be relatively modest, unless the change in circumfer~ 

ence is quite large The indirect employment effects of the 

design modifications, on the other hand, could cause fairly 

large reductions in the number of lobs in the cigarette 

manufacturing sector if a substantial decline in the demand for 

cigarettes were to occur. 

Even if the decline in employment were fairly large. however, 

it is unlikely that there would be much effect on wage levels. 

Production workers at all the cigarette manufacturing firms in 

the United States, but one, are covered by union contracts 

And the one nonwnion company pays wages that are at or 

above those paid by the union firms. The union presence at 

cigarette manufacturing firm. in effect, places a floor under the 

wages of production workers, keeping these wages from 

falling. However, the wages 01 most non~production employees 

and workers at stemming and redrying operations. who 

together account for about 40 percent of the work force within 

the cigarette manufacturing sector, are not similarly protected 

by unions. Reductions in employment levels among these 

workers, however, would be spread over a number of different 

local labor markets, with relatively few jobs affected within any 

specific local market. Thus, the downward pressure on wage 

rates should be minimal. 

We suggest in Section 2 that reductions in employment 

levels, which result from declines in the demand for cigarettes 

engendered by the design modifications, are likely to be re la^ 

tively gradual and, consequently, that these reductions could 

be effectuated mainly through attrition. rather than through 

permanent layoffs. However, if layoffs do occur, the transition to 

new jobs would probably be difficult for cigarette manulacturing production workers. The reasons lor this are suggested 

by a July 29. 1986 column in the Waii Street Journai by econ~ 

omist A. Gary Shilling. According to Shilling, production 

workers in the cigarette industry receive wages that are 93 

percent higher than wages lor non-union workers with a similar 

mix of skills. Thus. if these workers were laid off, they could 

probably only find new jobs at a much lower wage rate than 

the one they presently receive. And, it they were only willing to 

accept a job at their old wage rate, they would probably suffer 

a long bout of unemployment. 

Non~production workers and the employees of stemming 

and redrying operations, in contrast to production workers at 

cigarette firms, appear to receive wages that approximate 

those set by labor markets Thus, if some of these workers are 

laid off they should be able to find new lobs that pay wages 

comparable to those received on their old jobs. However, if the 

laid off workers were relatively old or competed in local labor 

market that were relatively loose, lengthy periods of unemploy~ 

ment could result for some 01 them. 

35 

I &Tobacco Farming Sector 

- 

Totmcco is by lar the most irnporiant input used in the produc 

lion 01 cigarettes Herice it is irnpoitarit to exaniine how 

employmerit levels In the tobacco farming sector would bc 

allectcd by the proposed cigarette design niodibcations As 

indicated iii the previous section, two ol the design modilica 

tioris ~ increasing ttie use ol expanded tobacco and 

decreasing ttie cigarettes circumference would reduce thc 

amount ol tobacco lised per cigarette and. therelore. have 

drect eflects or1 employment in tho tobacco farrlliriy Sector 111 

addition. if any oi the design madifcations result in a decrease 

iii corisumer demand for cigarettes. they would also reduce 

ttie demand lor tobacco arid, consequently. indirectly cause 

employment to fall iii the tobacco farining sector These effects 

are analvred 111 this sectiori 

Size of the Work Force 

Tlio three tobacco types lisled abow accciiml lot wtii,ill~ ,!' 

tiif: doineslically (~iown t(ll)mx ri I!I LIS cit~pi(:!k!, 11 

1986. approximately 57000 lull~tim qiiivalciit workcrs wv 

cinployed in growlnil ttiese three types of tolxiccc (Tliis oil, 

inate was derived by obtaininy the product ot ttie total ac cl 

and hours per acre figrrres appeariiig above anci tlien tiiv 

by 2000. the riumhei ol hoirrs in a work year) 

According to Grise. about hall the llire~currd tobacco anti 

one~qualter of the bi~rley and Southern Maryland toliocco 

grown in tlie Uriited States is oxported Moreover, 01 tlie lliic 

cured, burlcy. and Southerri Maryland tobacco that ieiriaiiis III 

the country, about 5 pcrcenl is useti lor products 0th Illail 

cigarettes Taking ttiese corisiderations into account suyyesri 

that around 35000 lull~time equivalerit workers arc cm[k>yi:d III 

growing the domestic tohdcco used 111 US cigaretlcs 

Direct and Indirect Employment Effects 

To Diedict tlie effects of the oronosed ciaarere dcsion rriodd 

cati'ons on the approximately 35,000 job; that are ai'risk. wc 

lirst must determine a value lor the tobacco farming sector oi 

the elasticity of employment with respect to output (d) To do 

this we use an approach similar to that utilized 111 Seclioil 3 

That is. we first assume that it is the least efficient. most 

marginal tobacco farms that would discontinue growing 

tobacco. should demand lor this crop fall Then. or the hasis 

The US Deparinierit of Agriculture collects statistics each year 

on the number ai acres on which cach type of tobacco is 

grown and on the average annual hours ol larm labor used 

per acre in growing tobacco According to Verner N. Grise a 

USDA agricultural economist who is an expeii on tobacco the 

statistics lor 1986 are as lollows: 

Tobacco Type Total Acres Hours Per Acre ~ 

Flire~cured 31 5.000 160 I 

Burley and 

Southern Maryland 242.000 280 I 

of this assumption. we compare output-per~worker on low ell8 

ciency larms witti that on more typical farms 

not necessarily the ones that would discontinue growing 

tobacco For example, the owners ol these larms could have 

Iew alternative employment oppoflunhes. Moreover, it rnzy he 

easier for relatively more capital intensive farms to begiri 

growing new crops than lor less capital iritensive farms 

However. there is considerable evidence that many operators 

of the smaller tobacco larrns. which tend to be the least eW 

cient ones, are currently farming on only a partMme basis and 

are employed at paid off-farm lobs tlie rest 01 the tirne More 

One could argue. of course that the least efficient farms are 

37 
over, the evidence also indicates that, in addition to tobacco, 

most tobacco farmers raise other crops or livestock.2 Furthermore, much of the equipment used by highly capital intensive 

tobacco farmers is specialized in nature and could not be 

easily utilized in producing other crops. Thus, we feel that our 

assumption that the more marginal tobacco growers are the 

most likely to leave the industry if the demand for tobacco falls 

is a reasonable one. 

Table 1. Hours of Labor Used to Grow 

100 Pounds of Burley Tobacco in 1976 

ACES of Tobacco Geographic Region 

Grown -

1 2 3 4 5 ~~~Average - 

2 acres or less 21.1 17.4 17.2 19.0 21.1 19.7 

2.1-5.9 13.5 16.3 14.4 16.5 16.7 15.3 

6.0-14.9 13.0 13.3 12.5 18.0 17.2 13.7 

15.0 and over 11.4 14.9 12.9 N.A. N.A. 

Average, all size 13.2 15.1 14.3 17.9 19.8 15.7 

groups 

SOURCE: Verner N. Grise and Owen K. Shugors, Buriey 

Tobacco Farming Characteristics and Pofenfiai for 

Change, U.S. Department of Agriculture, Economics, 

Statistics, and Cooperative Service, Report No. 460, 

1980, Table 17 

KEY 

N.A.: Not available 

Region 1: Inner Blue Grass of Kentucky 

Region 2: Intermediate Blue Grass of Kentucky 

Region 3: Outer Blue Grass of Kentucky 

Region 4: South Central Kentucky and North Central Kentucky 

Region 5: Eastern Tennessee 

Table 1 and 2 provide information that allows comparisons of 

the labor required to produce 100 pounds of tobacco on 

farms that fall into different size categories and are located in 

different geographic areas. This information is provided for two 

tobacco types: burley and flue-cured. Together, burley and flue^ 

cured account for about 98 percent of the domestically grown 

tobacco used in U.S. cigarettes, with Southern Maryland 

tobacco accounting for the remainder. 

labor is required to grow burley tobacco than flue~cured 

tobacco. This partially reflects differences in the amount of 

mechanization used in grwving these two types of tobacco. 

More importantly from the perspective of this report, however 

A comparison of the two tables indicates that much more 

Table 2. Hours of Labor Used 

to Grow 100 Pounds of Flue-Cured 

Tobacco in 1979 

Lessthan 9acres 32 24 42 29 35 

21~ -59 23 24 32 22 26 

60-149 20 24 25 19 23 

150 and over 18 20 26 18 21 

Average all size 22 22 32 21 25 

groups 

SOURCE: Verner N. Grise, tends in Fiue-Cured Tobacco 

Farming, U.S. Department of Agriculture, Economics 

Statistics, and Cooperative Service, Report No. 470. 

1981, Table 17. 

KEY 

Region A: Pee Dee-Lumber River boarder area of North and 

Region B. The Coastal Plain of North Carolina 

Reyion C: The Piedmont of North Carolina and Virginia 

Region D: The Southern Georgia Coastal Plain 

South Carolina 

is the fact that the two tables imply that, in growing either 

burley or flue-cured tobacco, there is considerable variation in 

output-per-hour of labor across farms of different size and 

farms located in different geographic areas. For example, Table 

1 indicates that it requires about 34 percent more labor to 

grow 100 pounds of burley tobacco on a relatively low efficiency farm than on a typical burley farm (21.1 t 157) Simi~ 

larly, Table 2 implies that 68 percent more labor is required to 

grow 100 pounds of flue-cured tobacco on a relatively low effi~ 

ciency farm than on a typical flue-cured farm (4.2 - 2.5) 

These figures suggest that the value of d in the tobacco 

farming sector is probably between one and two and that 1.5 

should provide a reasonable approximation. 

Given the assumption that d = 15 in the tobacco farming 

sector and the finding that about 35,000 full-time equivalent 

workers are required to produce the domestic tobacco 

currently being used in U.S. cigarettes, we next predict the 

effects of the cigarette design modifications on tobacco farm 

employment. These predictions appear in Table 3. 

zSee tor exampie, Daie M. Hoover and Leon B Perkinson. Fiue~Cured 

Tobacco Harvest Labor Its Characteristics and Vulnerability to Mechariv 

Lation, Depaitment of Ecanamrcs and Busmess. North Carolma Siate 

Unrversrry ai Raiergh. Repon No 38, June 1977, Verner N Gme. Trends in 

Flue-Cured Tobacco Farming, US. Depamnenr oi agricuifure, Economics 

and Statisocs Sennce, Repoit No 470, 7981, and Veiner N Grise and 

Own K. Shugars, Burley Tobacco Farming Characteristics and Potential 

lor Change, US Depatiment of Agriculture, Economics Staiistics and 

Cooperative Service Reporf No 460 1980 

38 
Table 3. Effects of Design Modifications on Tobacco Farm Employment 

~~ ___ 

Percentage reduction 

in farm workers 

Percentage reduction needed to produce 

tobacco used in U S tobacco used in U.S Number of full~time 

equivalent jobs lost .~ Change .. ~ cigarettes cigarettes . 

(1) Increasing the use of expanded tobacco by 

20 percentage points 1 0% 15 O/n 5.250 

(2) Decreasing cigarette circumference from 

25mm to - 

(a) 22mm 1 4% 

(b) 18mm 35Vo 

21 .O% 

52.5% 

7,350 

18,375 

(3) 5 percent reduction in consumer demand 

for cigarettes 5% 7 5% 2 625 

11 is important to emphasize that the employment reduction 

iigures iri the ttiird column 01 Table 3 above represent lirst~ 

round effects As iridicated in Section 2, it is possible that the 

reductions iri tho demand ior tobacco implied by the first 

column of the table could be substantially offset by market 

responses that decrease the price of tobacco and quota 

Fprogrdm Even if these changes had little effect or the amount 

of tobacco used by the domestic cigarette industry, they could 

tiavc a malor irnpact iri stimulating expoits. If so. the predicted 

redmlioris in tobacco farm employment that appear in Table 3 

could bc largely mitigated As indicated earlier, the cons id era^ 

lions liisl outlined are being examined elsewhere as part of the 

National Bureau of Standards cost-benefit study 

Implications 

The arialysis in the previous subsection suggests that ttie 

proposed cigarette design modificatioris could cause subs tan^ 

tial reductions in the number of full~time equivalent jobs in the 

tobacco farming sector Moreover since rnost persons who 

work on tobacco farms do so on a seasonal basis. each fik 

time equivalent job that is lost would affect several different 

workers 

tobacco sector employments would result in few instances of 

real hardship3 To understand this. it is important to recognize 

that workers on tobacco farms include several different groups 

the farmers themselves, members of the iarmerS families: local 

persons. most of whom are employed seasonally. and migrant 

workers who are employed seasonally Relatively few members 

of any of these groups live in families where most income is 

Neveriheless. there is mucti to suggest that the reductions iri 

~~ ~~~~ ~ ~~ 

3lrxj~t$tY Paul R Jnhrrstln nile Ecn!nurrilr,s 01 thc Tubaccc IhdUi;iry 

gcr Pi,lil,s/iris New York, !9 

.sI",g !hiit ;iqlsting 10 I7ICC17 

iy ,anei:1w I<,, lll"lil p 

derived from tobacco farming For many oi the more mar(jiria1 

tobacco farmers. tobacco iricome is presently merely ari 

income supplement to off~farm work Such farmers should he 

able to make a fairly smooth trainsition to fullbtime non tarrr 

work. As noted earlier, moreover it is also the case that crops 

in addition to tobacco are onen grown or1 tobacco farins 

Some ol these farms. presumably. could fairly readily discori 

tinue growing tobacco altogether Marly local persons who 

work seasonally on tobacco farms do so for comparatively fevd 

liouis a year Consequently, for these persoris, most of whom 

are teenagers, tobacco farm earnings usually account for a 

minor fraction of total family income. Finally, migrants who work 

seasonally on tobacco farms could presumably make a fairly 

easy transition to other crops and to other farming areas 

the design modifications can be viewed as being scattered 

among a considerable number of more or less distinct labor 

markets. As suggested above. several different groups oi 

workers would be affected. To some extent, at least. these 

persons compete in different labor markets In addition. ttie 

farms on which burley and flue-cured tobacco are grown are 

located in a number of different areas spread over six states 

Because tobacco farm workers are dispersed among many 

different labor markets. ttie number of lobs affected by the 

design modifications in most individual markets would terid to 

be relatively small This should reduce downward pressure on 

wages rates in these markets However. some downward pres^ 

sure would exist in some markets Whether wages would aclu~ 

ally lall as a result depends, in part on what happens to the 

minimum wage over the next few years. At present the federal 

minimum wage is $335 According to Verner Grise. hired 

workers on burley tobacco farms currently receive a wage of 

about $5 an hour, while hired workers on flur~cured tobacco 

farms receive from $3.50 to $4 an hour. If the minimum wage 

remains at its present level. the wages of hired tobacco larm 

workers. especially those of burley workers, could fall some^ 

what as a result of ttie design modifications. However, the 

minimum wage. which historically has been raised every five 

Workers whose employment would be adversely affected by 

39 
years or so, was last raised in 1981, and Congress is currently 

considering new minimum wage legislation. If the minimum 

wage is increased by any appreciable amount during the next 

year or two, the wages of hired tobacco farm workers would 

be restrained from falling. 
I 5mTobacco Auction 

Warehousing Sector 

- 

Almost all the domestic tobacco used by U.S. cigarene makers 

is purchased through auction warehouses. In this section, we 

examine how the proposed cigarette design modification would 

affect employment within the tobacco auction warehousing 

sector 

levels in the tobacco auction warehousing sector, partially 

because much of the work is seasonal and many of the 

workers migrate from one marketing center to another during 

the marketing season. which extends from July through 

February. However, based on survey information collected by 

the U.S. Department of Agriculture, Verner N. Grise has estimated that, in 1974. 4.1 million hours of labor were employed 

in tobacco auction warehouses that sold flue-cured tobacco' 

Dividing this figure by 2080 hours implies that nearly 2.000 fullk 

time equivalent workers were employed in flue~cured tobacco 

auction warehouses in 1974 Hwwer, a figure on page 21 01 

the Tobacco Outlook and Situation Report, which was 

published March 1986 by the U.S. Department of Agriculture. 

indicates that the amount of flue-cured tobacco currently being 

marketed is only about two~thirds as high as in 1974 This 

suggests that at present full-time equivalent employment in 

flue~cured tobacco auction warehouses may be only about 

1,300 workers 

currently employed in tobacco auction warehouses that sell 

burley and Southern Maryland tobacco This is suggested by 

Tables 22 and 25 of the Tobacco Outlook and Situation 

Report, which indicate that the combined weight of burley and 

Southern Maryland tobacco marketed in 1986 equaled 77 

percent of the weight of flue~cured tobacco sold in that year. 

In Secbon 4. we noted that about 50 percent of the flue^ 

cured tobacco and about 25 percent of the burley and 

Southern Maryland tobacco grown in the United States is 

exported. Taking this into account suggests that tobacco 

auction warehouses employ, perhaps. 1.400 full-time equivalerit 

workers in marketing the domestic tobacco used in U.S 

cigarette 

There is relatively little reliable information about employment 

Perhaps. an additional 1,000 full-time equivalent workers are 

To determine the value 01 d lor the tobacco auction waie~ 

house sector, we follow an approach very similar to oiic used 

in Section 4 to establish the value ol d tor the tobacco lnrrniri<j 

sector Our approach is based 011 iriforrnation which is loirnd 

in Table 2 of Grises 1974 paper on flue~cured tobacco auction 

warehouses This information, which appears below lnciicates 

how the number ol hours of labor used in such warehouses to 

market 1,000 pounds of tobacco varies across geograptiic 

regions 

Hours of Labor Used 

to Market 1,000 Pounds 

Geographic Region of Tobacco in 1974 ~ 

~ ~ ~~~ 

Pee Dee~iurnber River 

Area ol North and 

South Carolina 33 

Coastal Plain of North 

Carolina 32 

Piedmont ol North 

Carolina and Virginia 29 

Plain :i 9 

Average, all regoris 33 

Southern Georgia Coastal 

41 
Table A Effects of Design Modifications on Tobacco Auction Warehousing 

Employment 

Number of full~time 

Change equivalent jobs lost 

Percentage reduction 

in farm workers 

Percentage reduction needed to produce 

tobacco used in US tobacco used in US 

cigarettes cigarettes 

(1) Increasing the use of expanded 

tobacco by 20 percentage points 

(2) Decreasing cigarette 

(a) 22mm 

(b) 18mm 

circumference from 25mm to 

(3) 5 percent reduction in consumer 

demand for cigarettes 

10% 12.0% 

14% 

35% 

16.8% 

42.0% 

5% 6.0% 

168 

235 

588 

84 

As can be seen the variation across the four regions is relativeij moderate, For example, dividing the values for the 

Southern Georgia Coastal Plain area by the average value for 

all regions implies that 18 percent more labor is required for a 

relatively inefficient auction warehouse to market 1,000 pounds 

of tobacco than for a typical auction warehouse. Given this 

information. we shall assume that d = 12 for the auction 

warehousing sector 

Given this value for d and our estimate that marketing the 

domestic tobacco used in U.S cigarettes currently requires 

1,400 tobacco warehouse auction workers. we can now predict 

the effects of the proposed design modifications on ern ploy^ 

rnent in the auction warehouse sector These predictions 

appear in Table 4 

The employment reduction figures in the third column of 

Table 4 are relatively small reflecting the fact that the full time 

equivaient work force in the tobacco auction warehouse sector 

is itself quite small These figures should be viewed as esti 

mates of first round effects For reasons discussed in Section 4 

they could considerably diminish if as a result of reductions in 

the domestlc demand for tobacco tobacco prices were to fali 

or the government made certain adjustments in tobacco 

quotas and price supports 

42 
I 6.0ther Support Industries 

Tile principle input to cigarette manulacturing is. 01 course. 

provided by the tobacco farniing sector which was discussed 

in Section 4 But numerous other inputs are also purchased by 

cigarette manufacturing firms. These include paper, fiber for 

filters. aluminum foil. chemicals, containers, machinery. tram 

portation energy, advertising. and many others To meet the 

demands of the cigarette manufacturing sector, the industries 

producing ttiese inputs must. in turn purchase inputs of their 

ow This, in turri. generates still further purchases of noods 

and services with the process continuing in ever dwindling 

iiicrements 

It should be evident that most industries in the ecoriomy will 

tie affected by this process at one point or another. Thus. in a 

sense most industries can be viewed as support industries for 

the cigarette manufacturing sector. In this section. we consider 

the direct arid indirect effects of the proposed design modiiica~ 

lions on employment in all the cigarette manufacturing support 

iridustries. but the tobacco farming sector 

Direct Effects 

Adoption of the design modifications would result in orily a fea 

relatively moderate direct employment effects within the support 

industry sector Each of these is briefly discussed below 

Addition of Chemical Additive to Blend 

The addition of a chemical additive to the tobacco blend used 

in cigarettes would of course require cigarette firms to 

purchase a new input This in turn would generate jobs within 

the chemical industry For example the 3M Company has 

suggested that 15 grams of Expantrol be added to each ciga 

rette Since 6585 billion cigarettes were produced in 1986 this 

implies that about 109 thousand tons of Expantral would he 

required for this purpose A representative of the 3M Company 

lids indicated that the firm would have to hire about 125 addi 

tional workers to produce this quantity of Expantrol 

Doubling the Weight of Cigarette Paper 

The production oi cigarette wrapping paper wittiiri the LJiiil!:ri 

States presently rrriploys about 1,600 workers at two dilfeietil 

firrns According to a representative of one of these firms 

doubling the weight of cigarette paper would essentially doiihle 

tile time required to produce it Siiice the productlve capacity 

to do this is not currently available, tlie existing plant size mri 

capital equipment would have to be nearly doubled, as woultl 

the number of workers involved in the production of cigarette 

paper Hence, iI the weight of cigarette paper were doublecl 

employment levels at the firm producing this paper would 

iricrease bv around 1.500 workers 

Decreasing the Circumference of Cigarettes 

We noted iri Section 3 that if cigarettes were reduced In 

circumference, but at the same time lengthened sufficiently to 

maintain a constant puff count. ttie weight of the paper used 

to wrap cigarettes would fall For example. ii tlie cigarettes 

circumference was reduced from 25mm to 22rnm. the weight 

of the paper would fall by 2 1 percent And if the reduction 

was from 2Smm to 18mm. the weight 01 the paper would 

decrease by 9 percent This reduction in paper weight would 

permit some labor savings a! the firms producing cigarctte 

paper However, even in the case of a very large reduction iii 

cigarette circumference ~ say from 2Smm to 18mm ttie 

decrease in jobs would be quite moderate. probably 

numbering less than 100 

Indirect Employment Effects 

In principle. a reduction iri the demarid for cigarettes would 

filter through all the industries that support the activities of ttie 

cigarette manufacturing sector, reducing the demand for the 

output of these support industries and hence the rlrrmber at 

workers they ernploy. At the same time, however, consumers 

would use the funds they are no loiiger spending or1 tobacco 

to purchase other products. stimulating employment arriong 

43 
the firms producing these products and among the support 

industries for these firms. To examine these effects a bit more 

closely, it may be helpful to discuss them in the context of a 

specific support industry: the electric power industry 

manufacturing plants. It also services enterprises that supply 

inputs used by these plants (such as tobacco farms, paper 

companies. chemical companies. and so forth) and. in addition, firms that provide inputs to the suppliers Furthermore. 

electricity is also used by cigarette wholesalers and retailers. If 

the demand for cigarettes declined by (say) 5 percent, the 

demand for electric power would fall in the cigarette manufacturing sector itself, in industries that support the cigarette 

manufacturing sector, and among cigarette wholesalers and 

retailers. And, in principle, this could cause employment to fall 

at electric power companies and also at firms that provide the 

inputs used by electric power companies. 

These effects are likely to be quite small, however. To ill us^ 

trate this, let us look at a hypothetical power company that 

services a cigarette manufacturing plant. Assume that 20 

percent of the total power generated by the company is sold 

to the cigarette plant, an amount that is surely much higher 

than is likely to occur in any actual situation. Further. assume 

that a 5 percent decline in the demand for cigarettes results in 

the plant reducing its use of electricity by 5 percent. In this 

case, demand for the power company's total output would fall 

by exactly one percent (.20 x .05). an amount that certainly 

would not cause a substantial decrease in the number of 

workers the power plant employs. To look at just one more 

example, consider a chemical plant that sells 30 percent of its 

output to cigarette firms and purchases 20 percent of the total 

power generated by the electric company that services it. In 

this case, a 5 percent decrease in the chemical plant's sales to 

the cigarette industry would cause the chemical firm to reduce 

its use of electricity by around 1.5 percent (.30 x .05). This, in 

turn, would cause demand for the power company's output to 

fall by 0.3 percent (.015 x 20). once again having a very 

small effect, rf any, on employment at the electric power 

company 

It was pointed out above that if the demand for cigarettes 

fell.the demand for other products would increase The firms 

producing these products would, of course, increase their use 

of electticity, as would industrres that support these firms. Once 

again, however, the magnitudes involved are likely to be small. 

Consequently, although employment levels in the electric power 

industries may increase. as demand rises for products other 

than cigarettes, this increase would tend to be slight. 

It should be apparent from this discussion that as 

consumers reallocate their expenditures from cigarettes to other 

products, the overall use of electricity in the nation might either 

increase or decrease a bit In addition, depending on the 

specific geographic locations of the firms affected by the real^ 

The electric power industry directly services cigarette 

location of consumer resources. individual electric power 

companies might experience either small increases or small 

decreases in the demand for their product Thus. the size of 

the total work force in the electric power industry could either 

slightly rise or fall; and, even if it remained the same. small 

increases in employment might occur at some individual power 

companies, while small decreases might occur at others 

The electric power industry example lust discussed has threc 

major implications for this study, First. it implies that a reduc~ 

tion in demand for cigarettes could, in principle at least. cause 

changes in employment levels at firms throughout the 

economy. Second, the example suggests that most of these 

changes in employment would be so diffused and complex 

that it is virtually impossible to predict where they would occur 

with any precision. Third. and most important. (he example 

implies that, in most instances. the changes in employment 

levels would be very small and inconsequential. 

Thus, it would appear that for most industries, it is not 

important to take account of any indirect employment effects 

resulting from the cigarette design modifications The only 

industries for which this is not the case are those that contain 

firms that, unlike electric power companies. supply a product 

that can only (or almost only) be used by cigarette companies 

Tobacco farms, which were discussed in Section 4. provide the 

most obvious examples of such firms. There are only a few 

other examples. These include the firms that produce highly 

specialized machines used by cigarette companies ~ such as 

cigarette makers, plug makers, and cigarette packers ~ and 

companies that manufacture items that become part of the 

cigarette itself ~ such as wrapping paper, tipping paper, filter 

material, and flavorings. The manufactures of such materials as 

aluminum foil or cardboard cartons would not be included in 

this list since the inputs they provide cigatette firms. like those 

provided by electric power companies. could also be used by 

non-cigarette firms. 

Most of the highly specialized machines that are used in 

making cigarettes are produced in Europe Consequently. we 

will not attempt to predict the effect of a decrease in the 

demand for US. cigarettes on employment at firms manufac~ 

turing this machinery. According to Table 3.26 of the Wharton 

study, purchases hy cigarette companies of materials that are 

incorporated into cigarettes ~ for example, wrapping paper. 

tipping pape,: filter material, and flavoring ~ generated about 

7,000 lobs in 1977 at the firms that manufactured these 

products. If the demand for cigarettes fell by 5 percent and. 

consequently, cigarette companies used 5 percent less of 

these products, some reduction in employment would occur 

within firms manufacturing the products There is no way to 

predict the exact number of such lobs that would be lost hut 

200 to 500 positions would appear to he a reasonahle order 

of magnitude (Note that if d = 1. 350 positions would be 

. 

lost.) 

44 
Manufactured tobacco products require two steps to reach the 

buying public. First. they are distributed by wholesalers to 

retailers. Then, these retailers sell them to consumers. The 

proposed cigarette design modifications should have no direct 

effects on employment in either the wholesaling or retailing 

sectors, but indirect employment effects could occur as a result 

of a reduction in the demand for cigarettes. In this section, we 

assess these indirect effects on the wholesaling section. and, 

in the following section. we examine the effects on the retailing 

sector. 

Two estimates exist of the number of persons employed in 

the wholesale distribution of manufactured tobacco products: 

the Chase Econometrics study reports that 35,300 workers 

were engaged in this activity in 1983, while the Wharton study 

indicates that 42.000 workers are engaged in this activity in 

1977 These two figures pertain to workers involved in both 

wholesaling cigarettes and wholesaling other manufactured 

tobacco products. such as cigars and pipe tobacco Table 6b 

of the October 1986 issue of Tobacco Monthly reports that 

1977 cigarettes accounted for 92.2 percent of total consumer 

expenditures on manufactured tobacco products, while Table 

6a of this publication indicates that the number of cigarettes 

sold in this country in 1986 was only 94.7 percent as large as 

in 1977 Adjusting the employment figure reported by Wharton 

to account for these two considerations implies that in 1986 

around 3Z000 workers (that is, 42,000 x ,922 x ,947) were 

employed in the wholesaling of cigarettes. Similarly, Tobacco 

Monfhiy reports that in 1983 cigarettes accounted for 93.5 

percent of consumer expenditures on tobacco products and 

that the number of cigarettes sold domestically was only 97.3 

percent as high in 1986 as in 1983 Adjusting the employment 

figure reported by Chase Econometrics for these factors 

implies that in 1986 about 32,000 workers were employed in 

the wholesale distribution of cigarettes (35,300 x ,932 x ,973). 

Thus. once adjusted. the Chase and Wharton estimates 

suggest employment levels of a similar order of magnitude. 

What would be the reduction employment in the wholesaling 

sector as a result of a 5 percent reduction in cigarette sales? It 

seems likely that it would be in the order of 5 percent, in other 

words. d, the value of the elasticity of employment with respect 

to output probably approximates one for the sector. The major 

reason for this is that the reduction in sales would probably be 

relatively evenly distributed among wholesalers throughout the 

country. There is no reason to expect that employment effects 

would be particularly concentrated among those wholesale 

operations where output per worker is especially either low or 

high. 

Given our assumption that the value of d approximates one 

in the wholesaling section, we predict that a 5 percent reduction in sales would cause employment to fall by 1,600 or 1.850 

workers. The lower of these estimates is based on the Chase 

Econometric employment level figure. while the higher estimate 

is based on the Wharton figure 

Since these employment reductions are likely to be 

distributed throughout the country accounting for very few jobs 

in any specific local labor market, effects on wage levels 

should be negligible. The employment reductions should also 

impose little real hardship. If the reductions take place gradu~ 

ally over a relatively long period of time, which, as suggested 

earlier. appears likely, few direct lay-offs need occur; instead. 

attrition can serve as the principle mechanism for obtaining the 

reductions. Even if lay~offs do occur, however those workers 

who are affected are likely to be relatively low in seniority and, 

as a consequence, currently receive relatively low wages and 

be fairly young and mobile. Such persons should be able to 

find jobs comparable to those they lost fairly easily and 

quickly. 

45 

I 8.~etai1ing 

B 

It appears likely that 111 most parts 01 the retailincj sector tile 

value 01 d ttie elasticity 01 employment with respect to output 

would approximate ieio In other words reduction is cigarette 

sales should have negligible effects on employment lcvels The 

reasons for this is that few retail employees are employed for 

tlie sole purpose of selling cigarettes In such major cigarette 

retail outlets as supermarkets, drug stores. convenience stores, 

gas stations, and bars. cigarettes usually constitute a small 

fraction of total sales. Indeed. according to Table 34 of The 

Tobacco Outlook and Situatiori Report. which was published 

March 1986 by the US Department of Agriculture. cigarette 

sales iri these outlets typically account for less thari 5 percent 

of total sales. However even if cigarettes accounted for as 

much as (say) 10 percent of total sales in a pairicular retail 

outlet. a 5 percerit reduction in cigarette sales would only 

cause the outlet's total sales to fall by one half of otie percent 

(.05 x 10) And even lhis would he partially onset if 

consumers who make fewer cigarette purchases. spend the 

money they save on other products sold by tlic outlet. Thus it 

seems unlikely that the size of tho outlet's work force would be 

reduced as a result of a 5 percent decline iri cigarette sales 

The one possible exception to tlie above analysis concerns 

cigarette vending rnachine operations within tile retailing sector 

The workers eniployed by such operatioris do prinapi%lly 

derive their livelihood froni ttie sale of cigarettcs However, cwii 

these workers may not be very ttireatened by a relatively 

moderate reduction in cigarette sales. sucti as 5 perceri! 

Under these circumstances. sales at eactl vending iriactiiriii 

would fall somewhat. hut the Iota1 number 01 mactiines 

would probably not he reduced by very rriuctl rhus it woulii 

appear likely that within ttio vending part of the reiailing sector 

the value of d is well below one For our purposes we stiall 

assiirne that d ~ 05 

An estimate iii the Wharrori study indicates ttiat iri 1977, 

33.000 workers were employed iri clgarene vendrig (a 

comparable figure is not provided iri the Chase Ecoriornetrfcs 

study.) Adlusting this cstimatc to retlect ttic fact that the 

riumber of cigarettes solti iri 1986 was only 94 7 pcrcerit as 

high as In 1977, implies that. iii 1986. around 31.000 persons 

were employed in cigarette vending. Coupling tliis estirriate 

with our assumptiori that d = 05 implies that a 5 percent 

decline in cigarette sales would reduce the employrnent 01 

cigarette vending workers by 775 For reasoris very sirriilar to 

lhose suggested in Section 7. wherc we discusset1 ernploy 

ment reductions iri the wholesaling sector ttiis loss of 775 jobs 

should tiave VirtiJaIly no effects 011 wage levels and shoukl 

impose little thardstiip or most affected workers 

47 

The major purpose of this report is to present estimates of 

potential employment effects resulting from implementation of 

four proposed cigarette design modifications intended to 

reduce cigarette ignttion propensity. These estimates are 

reported in summary form in Table 5. 

As can be seen from the total column in Table 5. the direct 

employment effects of two of the design modifications would 

be positive, while the direct effects of the other two would be 

negative. Unless the Circumference of cigarettes IS decreased 

to less than Zrnm or the use of expanded tobacco is 

increased by around 40 percentage points, none of the direct 

employment effects is predicted to cause a total gain or loss of 

more than 10,000 jobs. Compared to the 110 million persons 

who are currently employed in the United States or the 8 

million who are unemployed. these numbers pale into insig~ 

nificance. The figures appearing in the bottom row of Table 5 

imply that the indirect effects of the design modifications would 

also be relatively moderate, unless consumer reaction to the 

modifications results in far more than the assumed 5 percent 

reduction in cigarette output upon which the estimates are 

based. Table 5 further indicates that the most important direct 

employment effects would occur in the tobacco farming sector, 

while the largest indirect effects on employment would be 

within the cigarette manufacturing sector 

It is important to emphasize that none of the negative estb 

mates appearing in Table 5 represents a net loss of jobs to the 

economy as a whole. There are two reasons for this. First the 

estimates in the table are predictions of first~round effects. For 

reasons discussed at several points in this report, the predicted 

effects for the tobacco farming and tobacco auction ware^ 

housing sectors could be substantially mitigated by price 

responses or governmental interventions in tobacco markets. 

The same factors could also result in small partial offsets to the 

predicted indirect effects for the other four sectors. 

The second, and more fundamental, reason why the nega~ 

tive predictions in Table 5 do not represent a net reduction ot 

jobs in the economy is that any job reductions within the ciga~ 

rette manufacturing sector and its support industries would be 

more or less offset by job increases occurring elsewhere in the 

economy. For example, job losses that result from declines in 

consumer expenditures on cigarettes would be offset by job 

increases that take place as a consequence of consumers 

raising their expenditures on other items. In a somewhat similar 

fashion, the job losses that can be directly attributed to 

increasing the use of expanded tohacco or decreasing the 

circumference of cigarettes would also be offset Either of these 

modifications would cause less tobacco to be used in 

cigarettes. This. in turn, would result in substantial cost savings 

in producing cigarettes. These savings mtght be passed on to 

the customers, stockholders. or employees of cigarette firms or 

they could be used by the firms themselves for new capital 

investments. In any event, recipients of the savings would even^ 

tually spend most of them, thereby stimulating employment. 

Although the lob losses that appear !n Table 5 would tend to 

be canceled by job gains occurring elsewhere in the economy. 

the individuals employed in these new positions would rarely 

be the same persons as those who lost their existing job. 

Thus, there would be a transitional period during which costs 

may be imposed on some individual workers. As suggested 

throughout this report, the total sum of such costs would prob~ 

ably not be large. First, according to Table 5, the total number 

of jobs lost would not be large. Second, the indirect effects 

result from decreases In consumer expenditures on cigarettes. 

and these are likely to occur quite gradually, allowing reduc~ 

tions in employment levels to take place through attrition, rather 

than through layoffs. Third. if layoffs do occur, many of those 

affected depend on tobacco for only a relatively small share of 

their total income 

49 
Table 5. Summary of the Estimates of the Direct and Indirect Employment Effects 

of the Proposed Cigarette Design Modifications 

sector ~~ ~ ~ ~ 

Tobacco 

Cigarette Tobacco Auction Other Support 

Change Manufacturing Farming Warehousing Industries Wholesaling Retailing Total' 

Direct Effectsb 

Addition of Chemical Additive t165 NONE 

lricreasing Use of Expanded 

Tobacco by - 

20 percentage points NEG -5,250' 

40 percentage points N EG -10,500' 

Decreasing Cigarette Circum~ 

ference from ~ 

25mm to 22mm -850 -7,35@ 

25mm to 18mm -2,150 -18,375' 

Doubling the Weight of 

Cigarette Paper +loo NONE 

Consumer Demand Response -3,750 -2,625' 

to Modification Causing a 5% 

Reduction in Cigarette Output 

And In Cigarette Purchases of 

All Inputs 

NONE t125 NONE NONE +290 

-168' NONE NONE NONE -5,418 

-336' NONE NONE NONE -10,836 

-235' NEG NONE NONE -8,435 

-588' N EG NONE NONE -2lJ13 

NONE +1,500 NONE NONE -1,600 

Indirect Effectsb 

-84' -350' -1,725 -775 -9,309 

NOTES: 

"Effects of negligible magnitude are ignored in computing total. 

bWhen a range. rather than a point estimate. appears in text, the mid-point of the range is reported in table. 

'Estimate represents first-round effect only. This first-round effect could be substantially diminished by adjustments occurring within 

tobacco markets. 

NONf: The design modification would not cause an employment effect to occur within the sector. 

NEG; Negligible Effect; less than 100 jobs gained or lost. 

It has also been argued in this report that wage rates would 

be Me changed by employment effects resulting from the 

cigarette design rnodilications. The malor reason for this IS that 

the total number of affected jobs is not large, and those that 

are affected tend to be dispersed through many different labor 

markets Consequently. in most individual markets. these jobs 

would account for only a very small fraction of total employrneiit. Moreover, in the cigarette manufacturing sector and the 

tobacco larm sector, union negotiated wage rates and the 

minimum wage. respectively, establish wage floors that help 

keep wages from falling 

50 
~~ ~ ~ 

Economic 

Sector Data 

for Modeling 

the Impact 

of Less 

Ignition-Prone 

Cigarettes 

Cost Analysis 

of Options for 

Self-Extinguishing 

Cigarettes 

ARMAND0 M. LAG0 

JENNIFER A. SHANNON 

Ecosornetrics, Inc. 

51 

Contents 

Cost Analysis of Options for SelfExtinguishing Cigarettes, 

Armando M. Lago and Jennifer A. Shannon .... 

1. Introduction. .................... 

2. The Structure of Costs in the 

Cigarette Industry .............. 

3. Option 1: Decreases in 

Circumference .................... 

4. Option 2: Use of Chemical Additives .... 

5. Option 3: Use of Expanded Tobacco . , 

6. Option 4: Increase Paper Thickness. .. 

- 

List of Tables 

Table 1. Potential Product Design 

Modifications to Reduce the Ignition 

.. .51 Propensity of Cigarettes Included in the 

.. .55 Benefit-Cost Study .......... 

... 57 Table 2. Summary of Incremental Costs of 

. .65 Ignition Propensity ..... 

Options for Reducing Cigarette 

... .77 

. . 89 Cigarette Industry Cost 

... .81 Table 3. Representative Aggregate 

Structure-1986.. .. 

Disaggregate Cost Structure of 

Cigarette Manufacturing 

Operations-1986 ............ 

Cost of Materials Used in the 

Manufacturing Operations per 

1,000 Cigarettes- 1986 . . 

Tobacco Leaf Costs Paid to 

Farrnetsilrnporters- 1985 ... 

Depreciation Costs per 1,000 

Cigarettes- 1986 ............ 

Summary of Cigarette Cost 

Structure- 1986. ........ 

Tobacco Volume, Weight, and 

Paper Area for Various Cigarette 

Circumferences for American 

Blend Types ......... 

Changes in the Material Costs 

Associated with Changes in 

Circumference- 1986 ... 

Costs of Parts in Equipment 

Modifications of Cigarette 

Makersiplug Makers .... 

Table 4. 

Table 5. 

Table 6. 

Table 7. 

Table 8. 

Table 9. 

Table 10. 

Table 11. 

56 

.56 

58 

59 

60 

62 

63 

63 

65 

.66 

67 

53 
Table 12. Costs of Parts in Equipment 

Modifications of Cigarette 

Packers .68 

Table 13. Costs of Labor and Idle 

Equipment in Modifications of 

Cigarette Makersiplug Makers ........... .69 

Costs of Labor and Idle 

Equipment in Modifications of 

Cigarette Packers-1986. ............... .70 

Table 14. 

Table 15. Innovation in Cigarette 

Manufacturing Equipment 

Performance ....................... 71 

Table 16. Capital Expenditures in New 

Plant and Equipment in the 

Cigarette Manufacturing 

Industry- 1974-1986 ................... .72 

Table 17. Age of Equipment in the 

Cigarette Industry- 1979-85 73 

Table 18. Costs of New Machines vs. 

Costs of Equipment Modifications 

Under Instantaneous 

Implementation- 1986. ................. .74 

Incremental Costs of Replacing 

Cigarette Packers, Cigarette 

Makers and Plug Makers-1986. ......... .75 

Table 20. Summary of Costs Associated 

with Changes in Circumference- 1986, .... .76 

Summary of Incremental Costs 

Associated With Changes to 

21 mm Circumference-1986. ........... .76 

Table 22. Labor Requirements of Adding 

Chemical Additives to the 

Manufacturing Process ................. .78 

Table 19. 

Table 21. 

Table 23. Costs of the Chemical Additives 

Option ........................... 78 

Table 24. Typical Blend Composition ............ .82 

Table 25. Relative Yields and Expanded 

Tobacco Used ....................... 83 

Table 26. Changes in Tobacco Leaf Costs 

from Doubling Expanded 

Tobacco Use .......................... 83 

Table 27. Capital Costs for Expanded 

Tobacco Processes- 1986 .............. .84 

Table 28. License Fees for Tobacco 

Expansion Processes ... 85 

Table 29. Labor Requirements and Costs 

for Tobacco Expansion Processes ........ .86 

Table 30. Incremental Costs of Expanded 

Tobacco-1986 ....................... 87 

Table 31. Summary of Expanded Cost 

Changes of Expanded Tobacco-1986 .... .91 

Table 32. Relative Cost Structure of Pulp 

and Paper Industry-1975 .............. .91 

Table 33. Changes in Cigarette Paper 

Industry Capacity Requirements-1986 .... .92 

Costs of Replacing Cigarette 

Makers Under a 4-Year Grace 

Period-1986 ........................ 96 

Table 34. 

Table 35. Incremental Costs Associated 

With Paper Thickness Under 4-Year 

Grace Period Implementation- 1986 ...... .97 

Table 36. Summary of Incremental Costs 

Associated With Paper Thickness 

Under 4-Year Grace Period 

lm~lementation- 1986. ................ .98 

54 
I 1 .Introduction 

The Cigarette Safety Act of 1984 (Public Law 98 567 98 Stat 

2925) created the Technical Study Group on Cigarette Fire 

Safety to investigate the technical and commercial feasibility 

01 developing cigarettes and little cigars with minimum 

propensity to ignite upholstered furniture and mattresses 

This study concerns the development of costs for the tech 

nical options considered for reducing the propensity to ignite 

cigarettes 

Study Objectives 

The objectives of the study were two-fold namely 

1 to develop cost element data through interviews with 

industry representatives and by literature searches 

2 to develop and quantify a cost model lor the process 

alternatives listed below 

Options for Reducing Ignition Propensity 

Four product modification alternatives were specified for the 

cost study‘ These are 

1 Reductions in cigarette circumference fromi 25mm to 21 

mm 

2 Adding chemical additives to the blend 

3 Changes in percent of expanded tobacco in the blend 

4 Increasing the thickness of the cigarette paper 

The actual specifications of the options as submitted by the 

National Bureau of Standards are presented in Table 1 

‘These options appear described in the memorandunr “Cigarette lgni~ 

tion Propensrty A BenelrtKoSt Study ” Second Progress Report 

Prepared by the Applied Economics Group Mathematical Analysis Dw 

slon ol the Natrunal Bureau of Standards lor the Technical Study 

Group on Fire Salery, July 31, 1986 

Limitations in Scope 

Due to the limitations in funds allocated to the co,st analysis 

task, several limitations in study scope were specified These 

limitations in scope included: 

1. The number of options studied would not exceed three.2 

2 Due to possible problems With data acquisition. given ttic 

proprietary nature of some of the cost data, only 

incremental costs would be estimated 

3 No assessment would be conducted of the technical 

effectiveness of the options in reducing ignition propem 

sity. nor would assessments be made 01 the impact of the 

options on taste and demand characteristics 

Data Problems and Difficulties 

The major problem facing the cost analysis concerns the 

confidentiality and proprietary nature 01 the data needed for 

the cost analysis Because of the difficulty of securing some 

of this proprietary data from both paper manufacturers and 

cigarette manufacturers the cost analysis makes extensive 

use of information in the published literature 

Cost Summary 

Table 2 provides a summary of the cost analysis presenting 

the incremental costs per 1000 cigarettes and their percent 

increase over the wholesale cigarette price 01 $33 75 per 

1000 cigarettes As shown in Table 2 there are two options 

use of chemical additives in the blend and increases in 

paper thickness which result in cost increases ranging lrom 

0 4 percent to 2 0 percent of the wholesale cigarette price 

The most economical of the options is the reduction in ciga 

rette circumference from 25mm to 21mm which results in 

cost reductions of about 3 uercent of the wholesale cigarette 

price 

?The study departed lioni the original contracl specifications 10 inciiiiie 

the costrny ol additives to lhe blcnd. .such as the Sibca gel oplm 

55 
Table 1. Potential Product Design Modifications to Reduce the Ignition Propensity 

of Cigarettes Included in the Benefit-Cost Study 

Four Year Grace Period IDItlntlMoUs Implementation 

0ptiO.m Total Aa p.rc.nt Of b1.- Total Aa Persent Of Whola- 

.I. cig.r.tt. Pric. ..I. cigar.tt. Prim 

1. Paduction in Cisarett. CizoYmf.rencm. frm 2% +A: 

Zlnn 8 -0.966 -2.91 S -0.966 -2.90: 

2. Mditions of Chemical Md1tiv.s to ths B1.M S +0.667 tl.961 S -0.667 +1.9SX 

3. 1ncr.as.d us. of expanded tobacco frcro 25 p-rcent 

axpandad tobacco in blend to: 

501 I ~ 0.400% -1.18% -.. -.. 

4. Inorementr in papr thickness frcol 24 gz-l$ 

basis rsiW to: 

32 gram/mZ s t0.154 to. 5x ___ _._ 

... ___ 45 sram/.Z s ta.252 W.6I 

Source: Sse tsxt in Chaptsrs 3. 4, 5, and 6. 

- 

Design bbdification Description hasvmption. 

- Additive ~ausss self-extinguishment when cisnrette 1% on 

substrata 

Chemical Additives to Blend Silfca Gel. Specific quantities to be tarsetad 

Change in Peroant Expanded 

Iobacco in bled 

ci.ax.tte circumierens. 

Paper Ihichcas 

Em ha msintained by adjusting 

. A constant Dyff count 

SdJustiw porosity 

and delivery can bs maintained by 

w; Natiorul Buraau of Standards. Applied Economic. Group "Cisaratt. Isnition Propenrity: 

Prepared for th. I.shnical Study Group on Cigarette Fire Safaty. July 13, 1966. 

A Benefit-Cost Study". Second Progress Report. 

Table 2. Summary of Incremental Costs of Options for Reducing Cigarette Ignition 

Propensity 

(In 1986 Dollars per 1,000 Cigarettes) 

I 

56 
2.The Structure of Costs in 

the Cigarette Industry 

I 

The Aggregate Cost Structure 

The point of departure for the analysis of the costs of the 

cigarette industry is the aggregate cost structure published 

by Smith Barney Research This aggregate cost structure 

presented in Table 3 shows the wholesale price of cigarettes 

at $33 75 per 1 000 cigarettes as of October 1986 The 

aggregate cost figures presented in Table 3 have been 

adjusted to reflect more detail on manufacturing costs and 

recent trends in tobacco leaf costs 

Manufacturing Costs Adjustments 

The aggregate cost structure presented in Table 3 does not 

include the detail on the manufacturing operations needed 

for the analysis so it was decided to apply to the aggregate 

numbers disaggregation factors developed by James E 

Morris adjusted in accordance with estimates from the 

1982 Census of Manufacturing as explained below The 

cigarette manufacturing costs of $1 40 per 1000 cigarettes 

(shown in Table 3) have been allocated between labor and 

energy costs based on their relative proportions shown in 

the 1982 Census of Manufacturing After this initial alloca 

tion both energy and labor costs were allocated to each 

manufacturing operation or process based on James E 

Morris estimates of the oercentage of total manufacturing 

costs in plant operations 

The costs of materials were distributed by industrial opera 

tions following a similar procedure with a few pertinent 

modifications The aggregate costs of materials shown in 

Table 4 were similarly distributed over manufacturing opera 

tions by using relative cost factors presented in James E 

Morris article4 with the exception of cigarette paper 

Paper Costs 

In the case of the cigarette paper the costs were estimated 

in accordance with the following formula 

c,, = (2 2 x 10 -) (BW) (L) (W) (P,) 

where 

CP 

BW 

L 

W 

p, 

2 2 x 

The paper costs are presented in Table 5 The remainder of 

the costs of the cigarette making materials were allocated 

among the remaining cigarette making materials in accor 

dance with James E Morris relative percentages 

= paper costs per cigarette 

= basis weight of paper (24 grams/mz) 

= length of the tobacco column (0065 rn) 

= bobbin width (00275 rn) 

= price of paper per lb ($1 75 per Ib) 

= represents the number of lbs per gram 

'/bid, page 48 

3Janies t Morris "This Tobacco Bustiless Par! Xlil Manufaclufing Costs 

01 Cigarerfes " Jobacco Inferilafi~nai, Val 182, No 2. December 26, 

1980, pp 47~52 

57 
Table 3. Representative Aggregate Cigarette Industry Cost Structure’ - 1986 

... .. .... .. .. . . . . -. . . . . . . . . . . . - . . . . .. . . . . 

3 Percent of Averag 

Wholesale Price 2 Cost/1,000 

Cigarettes 

Leaf Tobacco 

Purchased Leaf 

Carrying, Processing and Storage Costs 

Total Cost of Tobacco 

Other Materials 

Filter Materials 

Cigarette making (paper, etc.) 

Packaging 

Total Other Materials 

4 Direct Cigarette Manufacturing Labor 

Total Manufacturing Costs 

Overhead and Transportation 

Advertising 

Federal Excise Tax 

Total Costs 

5 Operating Profits 

Total Wholesale Price 

$ 3.70 

2.05 

$ 5.75 

$ 0.83 

0.66 

1.30 

$ 2.79 

1.40 

5 9.94 

0.80 

3.75 

8.00 

$22.49 

$11.26 

$33.75 

11.0% 

6.0 

17.0% 

- 

2.4% 

2.0 

3.9 

8.3% 

4.1 

29.4% 

2.4% 

- 

11.1 

23.7 

66.6% 

33.4 

100.0% 

- 

Based on full-priced brands. 

LIFO or current cost basis. 

$33.75 as of June 1986, based on averaged pricing within the industry of 

85 m and 100 mn; including manufacturers discount of 3%-4%. 

Excluding leaf processing labor. 

Before interest expense, other corporate expenses, and income taxes. 

Source: Smith Barney Research. Tobacco Monthly, October 22, 1986, p. 16. 
Table 4. Disaggregate Cost Structure of Cigarette Manufacturing Operations - 

1986 

(per 1,000 cigarettes) 

Cost Categories 

Labor Energy Materials Depreciation Total 

1. Purchased Leaf Tobacco 

2. Carrying, Processing 

and Storage 

a. Receiving 

b. Storage 

c. Dispatch 

d. Transport to Plant 

e. Stemning 

3. Plant Operations 

a, Tobacco Storage 

b. Vacuum Process 

c. Flue-Cured Line 

d. BarleyIMaryland Line 

e. Oriental Line 

f. Reconstituted Tobaccos 

g. Blending 

h. Casing 

i. Cutting 

j. Crushed Rolled Stem 

k. Drying 6 Cooling 

1. Bulking 

m. Plug Making 

n. Cigarette Making 

0. Packaging 

p. Shipping 

q. Quality Control 

4. Building Depreciation 

5. Overhead and Transport 

6. Advertising 

7. Federal Excise Tax 

TOTAL COSTS 

8. Operating Profits 

TOTAL 'WOLESALE PRICE 

N.A. 

N.A. 

$1.285 

0.026 

0.002 

0.004 

0.005 

0.003 

0.073 

0.001 

0.002 

0.003 

0.005 

0.003 

0.016 

0,206 

0.376 

0.539 

0.010 

0.011 

N.A. 

N.A. 

$0.115 

0.003 

negl 

negl 

negl 

negl 

0.007 

negl 

negl 

negl 

negl 

negl 

0.001 

0.019 

0.035 

0.048 

0.001 

0.001 

$2.93 

0.00 

$2.790 

0.016 

0.830 

0.644 

1.300 

N.A. 

0.016 

$0.205 

-- 

0.002 

0.002 

0.004 

0. 0.01 

0.039 

0.002 

0.001 

0.002 

0.001 

0.003 

0.008 

0.011 

0.092 

0.036 

0.002 

0.037 

-- 

$2.93 

2.82 

0.085 

2.296 

0.085 

0.023 

0.331 

$4.396 

0.029 

0.004 

0.006 

0.009 

0.004 

0.119 

0,003 

0,019 

0.005 

0.006 

0.006 

0.025 

1.066 

1.147 

1.923 

0.011 

0.014 

0.037 

0.558 

3.750 

8.000 

$22.490 

11.260 

$33.750 

59 
Table 4. Disaggregate Cost Structure of Cigarette Manufacturing Operations - 

1986 (continued) 

(per 1,000 cigarettes) 

~ ~ 

- Note: negl. denotes negligible amounts. 

Source: Disaggregation of cost figures from Table 2-1 using relative allocation 

factors from James. E. Morris "This Tobacco Business, Part XIII: Manufacturing Costs of Cigarettes." Tobacco International, Vol. 182, No. 26, 

December 26, 1980, pp. 47-52. 

Table 5. Cost of Materials Used in the Manufacturing Operations per 1,000 

Cigarettes - 1986 

Materials cost 

Leaf Tobacco 

Casing (Flavoring) 

Plug Making 

Filter Materials 

Plasticimers 

Adhesives 

Paper Wraps 

Flavorings 

Cigarette Making 

Paper 

Tipping Materials 

Starch 

Adhesives 

Ink 

$ 2.93 

$ 0.016 

$ 0.830 

0.638 

0.039 

0.001 

0.076 

0.076 

$ 0.644 

0.170 

0.386 

0.033 

0.043 

0.012 

60 
Table 5. Cost of Materials Used in the Manufacturing Operations per 1,000 

Cigarettes - 1986 (continued) 

Packaging 

Packets 

Foil 

stamps 

Plastic Wraps 

Tear Tapes 

Adhesives 

Cartons 

Cases 

$ 1.300 

0.282 

0.270 

0.016 

0.242 

0.071 

0.270 

0.127 

0.022 

Source: Estimated by disaggregating the cost of materials figures 

presented in Smith Barney Research, Tobacco Monthly, 

October 22, 1986, p- 16; by the relative percentages shown 

in James E. Morris, “This Tobacco Business: Part XI11 

Manufacturing Costs of Cigarettes.” Tobacco International, 

December 26, 1980, p. 48. 

Purchased Leat Tobacco Costs per 1 000 cigarettes grew 10 7 percent annually during the 

period 197782 while depreciation of buildings and struc 

The costs of purchased leaf tobacco costs presented in tures Der 1000 ciaareties arew at 2 6 Dercent annuallv 

Tables 3 have been adjusted to reflect the downward trend 

in tobacco prices 

In terms of the prices paid to tobacco farmers the costs 

of leaf (including the costs of transportation to the warehouse 

and warehouse commissions) are $2 93 per 1000 cigarettes 

as shown in Table 6 

The residual between the $293 farm gate tobacco costs 

and the $3 70 leal tobacco costs presented in Table 3 have 

been allocated proportionately between the stemmery and 

warehousing operations in accordance with the disaggrega 

tion factors developed by James E Morris 5 

Depreciation Costs 

Another adjustment made to the aggregate figures 

concerned depreciation costs According to the 1982 

Census of Manufacturing depreciatlon costs of machinery 

ifbid page 47 

during the same period P;ojection of the depreciation costs 

to 1986 resulted in the figures presented in Table 7 The 

projected depreciation costs for 1986 were deducted frorn 

Smith and Barney Researchs overhead costs and in rhe 

case of the machinery and equipment depreciation costs 

were allocated by manufacturing process proportionally to 

Morris relative percentages of the costs of equipment used 

in cigarette manufacturing The allocation of depreciation 

costs by manufacturing processes appear in Table 4 

Cost Summary 

To interface with the economic impact model developed by 

the National Bureau of Standards, the overall cost structure 

has been disaggregated into the lour components presented 

in Table 8 

~. GJaiam?s E Moms Op Cif p 50 

61 
Table 8. Tobacco Leaf Costs Paid to Farmersllmporters- 1985 

(all figures expressed per 1,000 cigarettes) 

Uns temmed Farm- Prices Paid Leaf Costs 

Weight' Weight, Importersb Farmers/Importers 

Processing Sales to Farmers/ Paid to 

(Ibs) (Ibs) ($) ($) 

Flue-cured - 

Domestic 0.587 

Burley - 

Domestic 0.491 

Maryland - 

Domestic 0.045 

Imported - 

All Types 0.585 

1.708 

0.657 $1.719 

0.551 1.594 

$1.129 

0.878 

0.045 1.320 0.059 

Not Appl. 1.480 0.866 

1.253 $2.932 

Correspond to 1984 cigarette weights from U.S. Department of Agriculture. 

Economic Research Service. "Tobacco: Outlook and Situation Report." 

September 1985, Page 33. 

1985 prices for domestic purchases of tobacco from U.S. farmers were 

supplied by the U.S. Department of Agriculture. 

62 
Table 7. Depreciation Costs per 1,000 Cigarettes - 1986 

(in current dollars) 

Annual Rate of Growth 

1977 1982 1986p 1977-1982 

Machinery and Equipment $0.089 $0.148 $0.222 10.7% 

Buildings and Structures 0.029 0.033 0.037 2.6% 

TOTAL $0.118 $0.181 $0.259 8.9% 

Source: U.S. Bureau of Census. 1982 Census of Manufacturing for 1977 and 

1982 figures. The 1986 figures are projected. 

Table 8. Summary of Cigarette Cost Structure - 1986 

(Per 1,000 Cigarettes) 

Cost Components cost As Percent of Wholesale Price 

Domestic Leaf Tobacco $2.066 6.1% 

Paper 0.170 0.5% 

Federal Excise Tax 8.00 23.7% 

All Other Costs 23.514 69.7% 

Total Wholesale Price $33.750 100.0% 

63 

I 3.0ption I: 

Decreases in Circumference 

- 

This option consists of decreasing the circumference of 

cigarettes from current typical values of 25mm to 21 mm.' 

No effort has been made to maintain the same number of 

puffs per cigarette, by lengthening the tobacco column of 

the cigarette to compensate for the reduction in circumference Table 9 shows the combinations of circumference and 

length analyzed. 

The costs associated with the option of decreasing circum~ 

ference include changes in the costs of material inputs. both 

tobacco and paper, and the capital costs of equipment 

modifications. 

Changes in Costs of Material Inputs 

On the basis of the information presented in Table 9 

'Eaflier analysis oi lhrs oution covered decreases ill ciiciirnlerence 10 18 regarding the requirements of tobacco and DaDer needed 

rn", for^ various cigarette circumferences. Table 10 estimates the 

Table 9. Tobacco Volume, Weight, and Paper Area for Various Cigarette 

Circumferences for American Blend Types'' 

Tobacco 

Tobacco Tobacco Column Tobacco Paper Paper 

Circumference Volume Length Weight Area Weight 

(mm) (CW) (mm) (grams ) (sm) (grams ) 

25.00 3233.05 65.00 0.853 1625.00 0.03900 

21.00 2281.29 65.00 0.602 1365.00 0.03276 

a Assumes a tobacco packing density of 0.264 grams/ccm, 0.339 puffs per mm of 

circumference, 0.138 puffs per mm of length, and paper with 24 grams/mz of 

basis weight. 

65 
Table 10. Changes in the Material Costs Associated with Changes in 

Circumference - 1986 

(per 1,000 cigarettes) 

Changes in Material Costs 

from 25 mm Circumference 

Circumference Tobacco Paper Tobacco Paper Total 

(mm) Costs' Costsb (8) (%) (%) 

25.00 $3.228 $0.150 ___ _-- -__ 

21.00 2.278 0.126 $-0.950 $- 0.024 $-0.974 

( - 29.4%) (- 16.0%) (-28.8%) 

a Estimated from Table 3 - 1 assuming tobacco prices of $1.72 per lb. 

tobacco prices were estimated by dividing the $2.932 leaf costs per 1,000 

cigarettes by the weight of 1.708 lbs. of tobacco per 1,000 cigarettes. 

(See the analysis presented in Table 2- 4.) 

Estimated from Table 3-1 assuming paper prices of $1.75 per lb. 

The 

changes in material costs which result from circumference 

changes, exhibiting significant savings in tobacco leaf costs 

resulting from the changes in circumference 

Cost of Equipment Modifications 

Changes in circumference will also require modifications of 

the most important cigarette manufacturing equipment, such 

as: cigarette packers, cigarette makers, and plug makers. 

Three types of equipment modifications may be distinguished: 1) changes within the drum ranges, 2) major 

changes, that is changes within the equipment specifications, and 3) changes outside the specifications of the equipment, that is. changes requiring new equipment designs. 

These changes are discussed next for each major equip^ 

ment type. 

Cost of Parts 

Small changes in diameter of 01-02mm. from the current 

25mm circumference level, can be accommodated without 

significant equipment modifications As a general rule modifications on the cigarette packers are more expensive 

because of the tri-dimensional changes required on these 

machines. Changes in excess of 0.6mm begin to require 

aopreciable modifications in equipment. 

The specifications of most cigarette makers, plug makers 

and cigarette packers range in circumference from ZOmm to 

28mm. so that it is possible to modify equipment within this 

range of specifications without having to order new 

machines or specially-made equipment. 

Based on interviews with selected equipment manufac~ 

turers, it is estimated that changes from 25mm to 23mm of 

circumference can be accommodated by replacing approximately 55 to 66 percent of the variable parts of the equipment. These minor changes are within drum ranges. 

However, changes in circumference below 23mm to the 22~ 

20mm level will require changing almost all the movable 

parts of the equipment. In the case of the cigarette 

makeriplug maker combination, these movable parts include: 

every drum in the tipping, at hopper, at rails, cut~offs and 

catcher drums. In none of these cases does it becomes 

necessary to change the process parts. Tables 11 and 12 

present the costs of parts for the modification of the cigarette 

maker/plug maker Combination and for the cigarette packers 

respectively. The costs of parts should be amortized over the 

service lives of the equipment in question. 

66 
Table 11. Costs of Parts in Equipment Modifications of Cigarette MakerslPlug 

Makers (Per Cigarette MakerlPlug Maker) 

Circumference Changes 

From 25mm to From 25mm to 

23mm 22-2omm 

Percent Process Parts Changes 0% 0% 

Percent Movable Parts Changed 66% 100% 

Cost of Movable Parts as Percent of 20% 20% 

Machine Costs 

Part Coats in Modifications of 

Cigarette/Plug Maker Combinations: 

Performance: 8,000 Cigarettes per Minute $89,100 $135,000 

Performance: 5,000 Cigarettes per Minute 69,300 105,000 

Source: Interviews with selected equipment manufacturers. 

Labor Costs 

The costs of labor have been estimated in Tables 13 and 14 

on the basis of interview responses. It was estimated, from 

the interviews, that it takes SIX shifts to change all the 

movable parts of the cigarette maker All the other labor 

requirements were estimated proportionally to the value of 

movable parts to be replaced. The number of shifts needed 

Costs of Idle Equipment 

The costs of idle equipment have been estimated as the 

interest on the value of idle equipment and the foregone 

profits from cigarette manufacturing. The formula for the est(- 

mation of the interest costs of each idle equipment is. 

Interest 

to length modify was the estimated cigarette as packers two shifts, to effect in accordance changes in with cigarette th [ cq;;of ] = [HI:::] = [TETnt] = 

literature,8 and these requirements were used to adjust the 

number of shifts required for the packers. Average wage 

rates of $1584 per hour as of June 1986 (from BLS sources) 

and overhead rates of 60 percent were used to estimate 

labor costs in Tables 13 and 14. The costs of these modifica~ 

tions need to be annualized or ammortized over the service 

Equipment Equipment 

r 1 

67 
Table 12. Costs of Parts in Equipment Modifications of Cigarette Packers 

(Per Cigarette Packer) 

Percent Process Parts Changes 0% 0% 

Percent Movable Parts Changed 55% 90% 

Cost of Movable Parts as Percent of 30% 30% 

Machine Costs 

Part Costs in Modifications: 

Performance: 8,000 Cigarettes per Minute $ 99,000 $162,000 

I 

Source: Interviews with selected equipment manufacturers. 

The annual manufacturing hours were estimated as 6,000 

hours (250 days x 24 hours per day) Interest rates of eight 

percent annual rates were used to estimate these costs The 

hours the equipment is idle corresponds to the labor 

requirements or shifts required to modify the equipment 

These costs should be amortized over the service life of the 

equipment 

Costs of Extra Machines 

The other costs associated with having idle equipment, 

concern the need for extra equipment to maintain production while the equipment in the production line is being 

modified. Thus, rather than estimate foregone profits while 

the existing equipment is being worked on, it is assumed 

that the cigarette manufacturers will maintain existing 

production figures through the installation of extra machinery 

The extra machinery requirements are estimated as follows: 

Extra Machines Required 

During Repair Period 

No of Machines Shifts Per Machine [ to be Repaired 1 = [ Per Year 1 

Assuming 750 shifts per machine per year and 438 

machines are to be modified, the number of extra machines 

needed to maintain production are six makeriplug combina~ 

tions and eight packers. Taking into account the installation 

times of new equipment which is roughly seven shifts for the 

makeriplug and ten shifts for the packer, increases the 

machine requirements to seven makeriplug combinations 

and nine cigarette packer machines. The costs of the extra 

machinery should be amortized during their period of 

service life, which is generally seven years. Tables 13 and 

14 present the cost of idle equipment for the makeriplug; 

combination and the cigarette packer respectively. 

Equipment Replacement Needs 

This section estimates the equipment replacement andlor 

modification needs of the U S cigarette manufacturing 

68 
Table 13. Costs of Labor and Idle Equipment in Modifications of Cigarette 

MakerslPlug Makers - 1986 (Per Machine Combination) 

Circumference Changes 

From 25mm to From 25mm to 

2 3mm 22-2omm 

Labor Requirements 

Cigarette Maker 

Plug Maker 

Total 

Labor Costs 

2 Repairmen @ $15.84/houra 

Manufacturing overhead 60%b 

Total Labor Costs 

Interest on Idle MachinesC 

Performance: 8,000 cigarettes per minute 

Performance: 5,000 cigarettes per minute 

Extra Machine Costs to Maintain Production 

While Idle 

Performance: 8,000 cigarettes per minute 

Performance: 5,000 cigarettes per minute 

4 shifts 6 shifts 

3 shifts 4 shifts 

7 shifts 10 shifts 

$1,774 $2,534 

1,064 1,520 

$2,838 $4,054 

$ 508 $ 

$ 392 $ 

720 

560 

$9,247 $ 0,788 

$7,192 $ 8,390 

a Average wage in cigarette manufacturing during June 1986 according to the 

Bureau of Labor Statistics Employment and Earnings, December 1986. 

Estimated from Table 2-1. 

Estimated at eight percent interest rate. 

69 
Table 14. Costs of Labor and Idle Equipment in Modifications of Cigarette 

Packers - 1986 

(Per Cigarette Packer Machine) 

.. 

Circumference Changes 

From 25mm to From 25mm to 

23mm 22-2omm 

Labor Reauirements 9 shifts 13 shifts 

Labor Costs 

2 Repairmen @ $15.84/houra 

Manufacturing overhead 60%b 

Total Labor Costs 

$ 2,281 $ 3,295 

1,369 1,977 

$ 3,650 $ 5,272 

Interest on Idle MachinesC 

Performance: 8,000 cigarettes per minute $ 704 $ 1,023 

Extra Machine Costs to Maintain Production 

While Idle: 

Performance: 8,000 cigarettes per minute $ 9,589 $12,329 

a Average wage in cigarette manufacturing during June 1986 according to the 

Bureau of Labor Statistics Emulovent and Earnines, December 1986. 

Estimated from Table 2-1 

Estimated at eight percent interest rate. 

industry and the average age of equipment. The section 

begins by analyzing the improvement in equipment performance since the mid-sixties, which is shown in Table 15. As 

shown in Table 15 new improved equipment is introduced 

on the average every 3-4 years.g 

The average age of equipment is estimated from the data 

on capital expenditures over the period 1974-1985; data 

which is presented in Table 16. Focusing on the 7-year 

*Hami ciaims that it bok /we years lo create Protos from scrafch See 

Tobacco infemat~onai December 22 1978 p 31 

capital replacement period which characterizes the industry. 

the following capital vintage (shown in Table 17) is estimated from the capital expenditure figures presented in 

Table 16. 

The average age of equipment in the industry is estimated 

as 21/2 years old, denoting the fact that the equipment in 

place has 41% years of remaining value. In terms of residual 

value of the equipment in place, the residual value of the 

equipment is 65 percent of the original investment. 

However, to reflect concerns that the market for large 

numbers of used machines may be limited. the residual 

value of the equipment has been lowered to 40 percent. 

70 
Table 15. Innovation in Cigarette Manufacturing Equipment Performance 

Cigarette Makers Cigarette Packers 

Year Make 

Performance Performance 

(Cigarettes (Packs 

per Minute) Year Make per Minute) 

1963 Garant lb 2,250 1964 Hauni KDW I1 250 

1972 Garant 4 3,000 1972 Neipman 50 325 

1976 Mollins Mark 9/N 4,000 1975 Schemermund ES 350 

1978 Protos 5,000 1977 Schemermund NB 400 

Mollins Mark 9/5 5,000 1982 Mollins HCP 5 425 

1982 Protos 1 6,000 1983 Neipman 50 450 

1984 Protos 2 8,000 Mollins SP1 350 

Mollins Mark 10 8,000 

Source: E. Rittershaus. "Modern Aspects of Production in the Cigarette 

Industry." Tobacco Journal International, May 1984, p. 422. 

Equipment Modifications vs. New 

Equipment Replacement Strategies 

Equipment~related strategies for changes in cigarette circum~ 

ference consist of either modifying the cigarette rnanufac~ 

turing equipment or purchasing new equipment if the 

modification costs are prohibitive. This section estimates the 

costs of equipment replacement or modification under two 

alternative implementation scenarios. In the first scenario the 

implementation is instantaneous and the manulacturers 

either modify the existing equipment or replace the existing 

equipment within the first year of implementation. In a 

second scenario, a 4-year grace perlod is allowed, so that 

manufacturers replace the equipment in the fifth year. 

a 7~year period It is estimated from Table 16 that the 

average cigarette maker in operation in 1986 IS capable of 

Since cigarette manufacturing machines are replaced over 

performance at 6 000 cigarettes per minute lo On the basis 

of this average performance the equipment replacement 

needs may be estimated for the 1985 production level as 

follows 

1985 

662 0 

~ 

Production level (billions of cigarettes) 

Average Performance of Cigarette 

Makeriplug Maker (cigarettes per 

minute) 6000 0 

Annual Hours (3 shifts per day @ 8 

hoursishift @ 250 days) 

Manfacturing efficiency rate (oh)" 70 

Number of Cigarette Makersiplug Makers 438 

6000 0 

'O6,OOO ogaretfes per minufe carespond fo fhe average pedormance "The elliciency rafe comes from Max Samfield "Eflecf on Mahrng 

Machine and Process Variables on the Fhg Power of Tnhicco Pzrf 

I " Tobacco Journal infernafronal, April. 1980. i, 356 

01 cigaretle mahing machines durrng the period 1978~1985, accordrng 

to fhe frgures presented in Table 15 

71 
Table 16. Capital Expenditures In New Plant and Equipment in the Cigarette 

Manufacturing Industry - 1974-1 986 

Capital Expenditures Real Capital Expenditures 

(millions of current dollars) (millions of 1972 dollars) 

1974 

1975 

1976 

1977 

1978 

1979 

1980 

1981 

1982 

1983 

1984 

1985 

$ 147.3 

102.3 

98.3 

118.0 

166.9 

194.2 

326.0 

578.9 

(D) 

570.0 

--_ 

__- 

$ 127.9 

81.3 

74.3 

84.2 

110.9 

118.8 

182.7 

295.9 

198.5~ 

264.7 

312.3~ 

367.9~ 

Note : (D) represents information not available because of disclosure 

problems. 

p denotes projected real capital expenditures. 

Source: The capital expenditures in current dollars come from the U.S. Census 

of Manufacturers. The real capital expenditures represent current 

capital expenditures deflated to 1972 dollars with the GNP Implicit 

Price Deflator. Years 1982, 1984, and 1985 were projected from past 

trends. 

72 
Table 17. Age of Equipment in the Cigarette Industry - 1979-1985 

Year 

Percent of Real Capital 

Expenditures 1979-1985 Cumulative 

1979 

1980 

1981 

1982 

1983 

1984 

1985 

6.9 

10.5 

17.0 

11.4 

15.2 

17.9 

21.1 

100.0 

6.9 

17.4 

34.4 

45.8 

61.0 

78.9 

100.0 

Table 18 compares the costs of equipment modifications, 

(annualized over the 4'/2 years of their remaining service 

lives) and the costs of new equipment (annualized over the 

seven years of equipment life of new equipment) for the 

instantaneous implementation scenario. Since the capital 

costs of equipment modifications andlor new equipment 

purchases are one-time non~recurrent costs, these costs 

need to be annualized over the remaining lives of the equip^ 

ment. This is accomplished by multiplying the capital costs 

of equipment modifications by their respective capital 

recovery factors 

The capital recovery factors, which are conventional to 

engineering economy analysis, are a procedure used to 

annualize capital costs. The capital recovery factors when 

multiplied by the capital investment (minus its residual value) 

results in the annual end of year depreciation and interest 

expenses corresponding to the capital expenditure. Capital 

Recovery Factors (CRFs) corresponding to eight percent 

interest rates are used throughout this study.'* 

to be 2% years (see Table 17) is assumed to hold a 40 

percent residual value. implying that there is an overseas 

market for the current equipment. For the sake of conser~ 

vativism, cost estimates which assume no residual value of 

equipment are also presented in Table 18. In any case. the 

optimal instantaneous strategy is to modify the equipment. 

The original equipment. whose average vintage appears 

32 The lormula for fhe estirnalion of the capital recovery factors is gwen hi, 

conclusion reinforced by the fact that the costs of the new 

equipment do not include the costs of installation which as 

mentioned earlier include labor during seven shifts per 

machine type Installation costs are not included in Table 18 

because they are superfluous to the conclusion that the 

optimal implementation option in the short run is to modify 

the existing equipment 

Equipment Costs During the 4-Year Grace Period 

If a grace period of 4 years is allowed to the cigarette 

manufacturers the equipment replacement strategy is 

presented in Table 19 Normal replacement is estimated by 

dividing the equipment replacement needs of 438 machines 

into the seven years of service lives The incremental costs 

of equipment replacement are the replacement costs in 

excess of normal replacement The replacement costs under 

a 4 year grace period are smaller than the costs of instan 

taneous implementation as shown in Table 19 

Equipment Costs Under Instantaneous Implementation 

Under the scenario of instantaneous implementation of regw 

lations for reducing cigarette ignition propensity, the strategy 

assumed is one of modifying the equipment during the first 

year of implementation. saving the equipment replaced 

under normal replacement policy during that year. The 

results are shown in Table 19. 

where ! = annual inrerest rafPr 

n = nterest rates ecmonmic iives of equiprneril (in years) 

73 
Table 18. Costs of New Machines Vs. Costs of Equipment Modifications Under 

Instantaneous Implementation - 1986 

(Per Machine) 

Cigarette MakerIPlug Maker Cigarette Packers 

Circumference Changes: Circumference Changes: 

Frau 2h From 25m From 25nm Frcm 2h 

to 23m to 22-2omn to 23m to 22-2om 

Strategy A: Equipnent Modifications 

A.l Capital Costs of: 

Parts 

Labor 

Interest on Idle Machines 

Extra Machines 

b A.2 Annualized Costs 

A.3 Annualized Costs per 

1.000 Cigarettes 

Stratew E: Purchase of New Machines 

B.l Capital Costs 

Asslnning no residual value 

of original equipnent 

Assuming 40% residuala 

value of original equipnent 

B.2 Annualized Costs' 

Assusing no residual value 

of original equipnent 

Assuming 40% residual 

value of original equipment 

B.2 Annualized Costs per 1,000 

Cigarettes 

Assuming no residual value 

of original equipnent 

Assuming 40% residual value 

of original equipnent 

$ 89,100 

2,838 

506 

9,247 

$101,693 

$ 27.792 

$ 0.018 

$675,000 

405,000 

$129,647 

77 I 788 

$0.086 

$0.051 

$135,000 

4,052 

720 

10,788 

$150,560 

$ 41,148 

$ 0.027 

$675,000 

405,000 

$129,647 

77,788 

$0. 086 

$0.051 

$ 99,000 

3,650 

704 

9,589 

$112,943 

$ 30.867 

$ 0,020 

$600.000 

360,000 

$115,242 

69,145 

$0.076 

$0.046 

$162.000 

5.272 

1,023 

12,329 

$180.624 

$ 49,364 

$ 0.033 

$600.000 

360,000 

$115,242 

69,145 

$0.076 

$0.046 

a Estimated as: (Proportional Residual Value) 

Annualized at CRFs of i - 8 psecent, n - 4 112 years (CRF - 0.2733) 

Annualized at CRFs of i - 6 percent, n - 7 years (CRF - 0.19207) 

74 
Total Costs of Circumference Changes 

The total incremental costs of circumference changes are 

presented in Table 20. In this table, the increased costs of 

equipment are compensated by the reduction in tobacco 

and paper costs, with the net result being reductions in 

cigarette costs as the circumference is decreased. The costs 

of circumference changes are driven by the tobacco 

requirements presented in Table 9. Table 21 summarizes 

the costs of circumference changes in terms of the cost 

components used in the economic impact model developed 

by the National Bureau of Standards, 

Table 19. Incremental Costs of Replacing Cigarette Packers, Cigarette Makers 

and Plug Makers - 1986 

4-Year Grace Period 1Nte"tMeO"S Implementation 

No. of Cigarette Packers and HaLer/Plug No. of Cigarette Packers and MaherIPlug 

Machines to be Replaced Machines to be Replaced or Elodified (MI 

Under Under 

Under &Year Under Normal 1nstantaneou. Norms1 

Year Grass Period Replacement Increments Implementation Replacement Increments 

0 63 -63 63 63 0 

0 63 -63 63 63 0 

8 0 63 -63 63 63 0 

9 0 63 -63 63 63 0 

10 0 63 -63 63 63 0 

11 0 63 -63 63 63 0 

12 0 63 -63 63 63 0 

Preaent Value of HakerIPlug $362.555 $336.125 $ 26.430 s359.545 $335.125 S 23.420 

Repl~cementIEhdification Combination 

Costs' (millions of 1986 

dollars) 

Packer $322.270 $298.776 S 23.492 $339.091 $298.776 $ 40.313 

Present Value of MakerIPlug S 0.045 S 0.042 S 0.003 S 0.045 S 0.042 $ 0.003 

Replacement Costs Combination 

(1986 dollars) 

per 1,000 cigarettesb 

Packer S 0.041 S 0.038 S 0.003 S 0.043 $ 0.038 S 0,005 

a Estimated assuming replacement Cost* of S675.000 per cigarette makerlplug maker and $600.000 per cigarette packer and 

discount rates of 8 percent. Equipnt mdification Costs are presented in Table 18. 

Estimated by dividing the present value figures by the production of Cigarettes during the 12-year period (12 yeus x 

663 billion cigarettes per year). 

75 
Table 20. Summary of Costs Associated with Changes in Circumference - 1986 

(Per 1,000 Cigarettes) 

Annualized Costs of New 

Equipment Purchases 

or Modifications Total 

Changes from Tobacco Paper Instantaneous 4-Year Grace Instantaneous 4 -Year Grace 

25m to: costs Costs Implementation Period Implementation Period 

21 $-0.950 $0.024 $+O ,008 $+0.006 $-0.966 5-0.968 

Source: Tables 10, 18, 19, 

Table 21. Summary of Incremental Costs Associated With Changes to 21mm 

Circumference - 1986 (Per 1,000 Cigarettes) 

Instantaneous 

Implementation 4-Year Grace Period 

As Percentage of As Percentage of 

Cost Components Costs Component Costs Costs Component Costs 

Domestic Tobacco Leaf $-0.607 -29.4%' $-0.607 -29.4%' 

Paper -0.024 -16.0%' -0.024 -16.0%' 

Federal Excise Tax 0 0% 0 0 

Other Costs $-0.335 $-1.4% $-0.337 - 1.4% 

Total Costs $-0.966 -2.9% $-0.968 - 2.9% 

a Estimated from Table 10. 

76 
- 

This option entails adding chemical additives to the blend. 

Because of the need to develop cost estimates for the test 

case, it has been necessary to analyze a specific product 

proposal which consists of adding silica gel to the blend 

The silica gel additive patented by the 3M company, will be 

marketed under the label 01 Expantrol. All the cost estimates 

presented in this section refer to the Expantrol silica gel 

additive, the only product available currently. 

The silica gel additive may be used in amounts ranging 

from 150 to 200 grams to 1,000 cigarettes. to decrease the 

propensity of cigarettes to stay lit. A dose of 150 grams per 

1,000 cigarettes (3 grams per pack of 20 cigarettes) is 

recommended for average cigarette sizes. While the additive 

can weigh up to a fourth of the weight of the tobacco in the 

cigarette, the manufacturer indicates that the extra weight 

and volume of the chemical additive should not cause any 

significant technical problems for the structure and design of 

the cigarette Since the additive is much more dense than 

tobacco, the volume of the tobacco mixture will not increase 

noticeably. and thus the cigarette length will not have to 

expand. According to the manufacturer. the extra weight 

should not affect the cigarette manufacturing process either. 

The additive can be mixed directly into the tobacco or be 

mixed with the casing which is later applied to the tobacco. 

The silica gel does not necessarily have to dissolve in the 

casing mixture (although if soluble would lead to a more efficient manufacturing operation), since the casing mixture acts 

solely as a vehicle to disperse the additive throughout the 

tobacco. The other method is simply to mix the chemical 

additive with the dry tobacco. The discussion that follows 

assumes that the amount of tobacco in the cigarette remains 

constant as the silica gel additive is added during the 

manufacturing process. 

Material Costs 

3M has set a target price of $2 00 per pound ($440 per 

kilogram) for the silica gel additive So far the manufacturer 

has not attached any extra fees such as a liceising fee or 

installment fee for the use of the patented Expantrol Thus 

the $440 per kilogram should represent the full coat of the 

silica gel additive as currently envisioned by the 3M 

company 

Cigarette Manufacturing Costs 

As mentioned earlier, there are two alternative methods for 

incorporating the chemical additives into the cigarette 

manufacturing process: one method consists of adding the 

silica gel in the casing process, its alternative is to add it 

during the blending process. 

The cost of either method of applying chemical additives 

will be minimal as long as the cigarette manufacturers can 

integrate the processes into their present tobacco handling. 

Both methods would only require adding in silica gel addi~ 

tives during other processses already used by the manufac~ 

turers. In the casing option, the manufacturers would add 

the chemical additives to the casing solution, and in the 

direct option, the manufacturers would add the additives to 

the tobacco during the blending process. The manufacturers 

might incur some minor labor costs in adding the chemical 

additives to the manufacturing process, and in maintaining 

quality of their tobacco blends. Table 22 presents ihe extra 

staffing required per plant for incorporating chemical addi~ 

tives into the manufacturing process 

77 
Table 22. Labor Requirements of Adding Chemical Additives to the Manufacturing 

Process - Per Plant 

Staff Function/Role No. per Shift 

Operator Adds Expantrol to casing or blending 1 

Quality Assurance Measures Expantrol levels 1 

Purchasing Staff Purchases Expantrol 1/2 

Inventory Staff Keeps inventory 1/4 

Quality Assurance Measures effect on tar/nicotine for 

labelling purposes 1 

Supervisor Supervises all aspects of Expantrol 1/4 

TOTAL 4 

Source: Selected interviews with cigarette manufacturers 

Table 23. Costs of the Chemical Additives Option - 1986 Dollars (Per 1,000 Cigarettes) 

.,. - .. .. . . . ,. . 

Total costs 

Erpanteol Extra Labor Costs As percent of the As Percent of 

Coats' Hanufacturing hxnt Other Cigarette Costs b 

-Product in Cigarette Hamfactusing and Cigarette Wholesale 

PriceC 

Expantrol Added to 

Casing Process or 

Blending Process $0.66 0.007 $0.667 2.83% 1.98% 

a Assuming 150 8rarcd per 1,000 clsaeettes and Erpantrol price of $2.00 per lb. 

Excludes the costs of domestic leaf tobacco. paper and Federal axise tax. 

~ssutniw w1~1esale prices of $33.75 per 1.000 oi&arettes. 
Given 750 shifts per year per plant, and an annual cigarette production of 662.0 billion, the following expression estik 

mates the cost of adding chemical additives per 1,000 

cigarettes. 

Increased Labor Manufacturing Costs per 1000 

Cigarettes = 

[ ~ir x [~~~~c~ng] Hourly Wage 

(Annual Cigarette Production) 1,000 

Total Costs 

The total costs of the chemical additives option are 

presented in Table 24. Adding chemicals to the blend 

results in cost increases of approximately two percent of the 

wholesale cigarette price. 

At the moment there appear to be technical problems 

with the incorporation of chemical additives. such as ex pan^ 

trol into the blend. The granular particles of Expantrol do 

not stick to the tobacco and leave an acid or pungent taste 

on the cigarette smoker. Other efficiency-related problems 

surfaced in manufacturing trials at low manufacturing 

speeds. Our assumption in the analysis is that further refinement of the chemical additives option is possible, leading to 

lower granular sizes and mixing into soluble additives at 

negligible extra costs, Analysis of the taste and health 

consequence of chemical additives, such as Expantrol, are 

outside of our scope of work. The reader is reminded that 

the scope of this study does not include technical evaluations of the Expantrol product. 

No overhead costs have been added since the staffing 

alieady included supervisory time The hourly wage in ciga 

rette manufacturing comes from the Bureau of Labor 

Statistics and corresponds to June 1986 These relative 

small increases in cigarette manufacturing costs are added 

to the Expantrol product costs in Table 23 

79 

5.0ption 3: I 

Use of Expanded Tobacco 

Background on Technology 

The expanded tobacco option consists of greater use of 

industrial processes available for decreasing the density of 

tobacco. Dr. Max Samfield decribes the expanded tobacco 

processes as immersing the tobacco leaf in a highly volatile 

liquid and then subjecting this tobacco~liquid mixture to a 

zone of high ternperat~re.'~ These processes. in commercial 

use since 1968, result in decreasing the density or 

increasing the filling power of the tobacco, thereby 

increasing the amount of cigarettes that may be produced 

from a given tobacco weight. 

The use of expanded tobacco has been increasing in 

recent years spurred by the trend toward lower tar and nico~ 

tine cigarettes. Sarnfield claims'4 that the most usual amount 

of expanded tobacco found in American cigarettes is 20-25 

percent. Indeed in some brands the weight of expanded 

tobacco is over 80-90 percent of the tobacco weight in the 

cigarette. The increased use of the expanded tobacco has 

resulted in improvements in the profit picture of the cigarette 

manufacturers, as less tobacco leaf is needed, and in reduc~ 

tions in tar and nicotine contents 

The use of expanded tobacco processes is common occurrence in most plants. R.J. Reynolds Tobacco company has 

licensed about 25 plants in 11 countries to use its patented 

G~13 process. The Reynolds process uses a volatile organic 

liquid Freon 11 or trichloromonofluoromethane as the 

impregnant. Plants are available in the following sizes. 400, 

1,000, 2,500, and 5,000 lbsihour. In addition, a large 15,000 

Ib per hour facility was opened in Winston-Salem in 1984.'5 

Phillip Morris licenses a competing expanded tobacco 

process referred to as the "Dry Ice Expanded Tobacco! 

process or DIET, Approximately 15 DIET plants have been 

'IMax Sarnirefd "lmpravrng Cigaretfe Yields wifh Expanded Tobacco " 

'dfbid. p 391 

15See the discussm in Max Sarnheid "NCW Siirge of Aclrvrty in 

iobacco Journal lnternatronaf, May 1981, p 388 

Expandrng Tobacco Research " Tobacco Journal International, March. 

1986, p. 200 

licensed ranging in size from 400 to 800 Ibs per hour The 

DIET process involves the impregnation of tobacco with 

liquid carbon dioxide 

Effect of Expanded Tobacco on 

Cigarette Yields 

The cigarette yield will vary as a function of the degree of 

expansion of the tobacco blend component as well as the 

percent of that component in the blend 

of the individual constituents time their weight fraction in the 

blend If the tobacco component to be expanded has 

initially the same filling power as the cigarette blend with 

which it will ultimately be mixed the following expression 

developed by Max Samfield l6 estimates the relative cigarette 

yields 

The filling power of a blend is the sum of the filling powers 

Relative Yield = 

where 

E = percent tobacco expansion 

B = percent expanded tobacco in the blend 

The above equation assigns a filling power of unity (Relative 

Yield = 1) to the initial blend This formula is used next to 

estimate the leaf tobacco requirements and costs 

Costs of Expanded Tobacco 

The incremental costs of using expanded tobacco include 

leaf costs along with increased investment and operating 

costs of the tobacco expansion process 

16Max Sarnfield Op Cit May 1981 p 390 

81 
Table 24. Typical Blend Composltion 

Weight Percent Import Components 

in Blend' in the Blendb 

Individual Constituents (8) (%) 

Flue-cured Tobacco 

Burley Tobacco 

Reconstituted Tobacco 

Oriental Maryland Tobacco 

34.92 

32.35 

20.00 

12.73 

20.9 

28.9 

34.1 

83.4 

TOTAL 100.00 100.00 

Estimated by dividing the domestic tobacco weight presented in Table 6by 

the proportion of domestic components in the blend. Reconstituted tobacco 

is assumed to be 20 percent. 

These figures come from the U.S. Department of Agriculture. Economic 

Research Service. Tobacco Outlook and Situation ReDort, Report TS-194, 

March, 1986, p. 14. 

Tobacco Leaf Requirements 

The tobacco leaf requirements are estimated from the relative yield formula, after specification of the percent of 

tobacco expansion and the proportion of expanded tobacco 

in the blend. The weight fraction of individual constituents in 

the blend assumed are shown in Table 24: 

Two of the above components: reconstituted tobacco and 

oriental tobacco cannot be expanded. Flue-cured tobacco IS 

100 percent expanded, and the resulting expanded fluecured tobacco is mixed back in with other non-expanded 

flue-cured tobacco. The same is true of burley tobacco 

whose maximum expansion is 80 percent, but which is also 

mixed back in with other non-expanded burley." 

expanded, the percent expansion of the expanded tobacco 

in the blend is estimated by weighing the percent expansion 

of the two constituents by their relatively proportions in the 

expanded blend. Table 25 estimates the leaf requirements of 

the expansion process for several levels of expanded 

Since only flue-cured and burley tobacco can be 

tobacco in the blend In the results presented in Table 25. 

the relative weight proportions of the components in the 

blend are kept constant, that IS, the expanded tobacco IS 

mixed in with non-expanded flue cured and burley tobacco 

Following Samfield, the current average percentage of 

expanded tobacco in the blend is assumed to be 25 

percent 

Tobacco Leaf Costs 

Tobacco leaf costs include the purchased leaf costs and the 

carrying, processing and storage costs (including stemming). 

These two cost items are kept separate because of the 

analytical needs of the economic impact model developed 

by the National Bureau of Standards. 

The following formula is used to estimate the purchased 

leaf cost savings using the prices and weight relationships 

presented in Table 6. 

"The source of these figures on expanded tobacco is the telephone 

conversation 01 February 20, 1987 with Dr. Alexander W. Spears ill. 

Executive Vlce President lor Operations and Research, Lonliaard, inc. 

a2 
Table 25. Relative Yields and Expanded Tobacco Used 

(Weights expressed in Ibs of unstemmed tobacco per 1.000 cigarettes) 

By Ip of Expamion By Componsnt in the Blsnd 

Parsent Expanded Orlsntal 

Iobacco In Blend' Relative Total Expanded ""-Expmid Flu.- and 

(81 YIeld' Waight Iobaoco Iobaoco Curad Burlmy Recorut1tut.d H.vlsnd 

0 1.0 2.084 a 2.084 0.728 0.67b 0.417 0.265 

25. 1.22 1.708 0.&27 1.281. a.59~ 0.553 0.342 0.217 

50 1.45 1.437 0.7185 0.7185 0.502 0.165 0.287 0.183 

Estimated from the relative yield equation. 

Reprsrent currsnt weraga conditions for the oisaratte manufacturing Industry. 

Table 26. Changes in Tobacco Leaf Costs from Doubling Expanded Tobacco Use" 

(Per 1,000 Cigarettes) 

Flue-Cured Bur1.Y Ilarylandlari."tal Rmsonrtltuted Iota1 

Domeatis Imports Domestic fwrta Daoertic Inported fnduatrlal 

L*af Leaf opsratloMb 

Unrt-d Tobacco Chansss (Ibr) -0 074 -0 020 -0 063 -0 025 -0 006 -0 028 -0 036 -0 010 -0 055 -0 271 

1.0 1.122 1.0 1.0 1.0 1.115 1.0 1.0 Not Applicable Farm Sales We1 ht 

Unstamd Prooessi~ WaIKhht I 

Cost Chawca s-0.142 s-0.021 s-0.113 s-0.023 s-o.oa8 5-0.043 s-0.066 s-0.028 s-0.019 9-0.463 

Leaf 

Tabls 

prices 

6 

for imports corn from p. Rsport IS-192. September 1985. p. 14. The domestic prices corn Irom 

Changes in Unstemmed 

Processing Weight 

From Expanded X 

costs Tobacco 

Farm Sales Leaf Prices [ WeightiU Proces;m;Waght nsternmed 1 [ z:i;/ 

Importers 

83 
Table 27. Capital Costs for Expanded Tobacco Processes - 1986 

(facility, equipment, and installation costs) 

~ ~ ~~ 

Annual 

Capital Costs 

Capacity Total per lb. of 

lbs. per Hour Type of Plant Capital Costs Expanded Tobacco' 

1,500 Integrateda $ 8,000,000 $0.129 

6,000 Integr at ada 15,000,000 0.061 

6,000 Free standing 41,000,000 0.166 b 

Integrated plants denote those that use tobacco filler produced elsewhere in 

the processing lines within the same manufacturing facility. 

Free standing plants denote those that use the tobacco leaf as inputs and 

must produce tobacco filler as the input into the tobacco expansion, with 

their expanded tobacco output transported to cigarette manufacturing plants. 

Estimated using capital recovery factors corresponding to 20-year lives and 

eight percent interest rates (CRF = 0.10185), and manufacturing efficiency 

rates of 70 percent. 

a 

Source: Selected interviews with industry representatives. 

The purchased leaf cost savings generated by the use of 

expanded tobacco are presented in Table 26. There is 

scant information available in the literature on the costs of 

reconstituted tobacco. MoshytB estimates costs of reconstituted tobacco as $0.15-$0.20 per Ib. in 1965. The cost 

figures presented in Table 26 presume a doubling of these 

costs. 

Capital Costs of Expanded Tobacco 

As discussed by Samfield.'o the use of expanded tobacco IS 

widespread throughout the industry. facilitated by the 

numerous plant sizes available. Since 1986, R.J. Reynolds 

has licensed a 400 Ibs. per hour compact version of their G~ 

13 process which can be made portable to suit the needs 

of manufacturers with low volume productions. In view of 

the modular characteristics of expanded tobacco process 

and its widespread use, only incremental additions to 

capacity are costed. 

Table 27 presents the capital costs, including facility and 

equipment costs and installation costs, for several types of 

plants and capacities. For the ease of the analysis to be 

conducted, the costs analyzed are those of integrated 

plants, not an unreasonable assumption considering the 

modularity and ease of adapting plant capacities for 

manufacturing expanded tobacco. 

"Raymond J Moshy "The Technology and Economics 01 Reconsffluted 

Tobacco Leaf. Par1 I/ " Tobacco, Vd 160, No. 2, January 8, 1976, p 

16 

'*Max Samheld, Op Cit May, 1981, p 391 

84 
Table 28. License Fees for Tobacco Expansion Processes 

Patent Holder Process License Fees 

Philip Morris DIET $0.10 per lb. for under 20 million lbs. 

of expanded tobacco 

$0.05 per lb. above 20 million lbs. of 

expanded tobacco 

R.J. Reynolds G-13 $0.12 per lb. for under 15 million lbs. 

of expanded tobacco 

$0.09 per lb. for under 15 million lbs. 

of expanded tobacco 

Source: Selected interviews with cigarette manufacturers. 

Licensing Fees 

The two main industrial processes in use: the DIET and 

G-13. are licensed at several plant sizes. The licensing fees 

presented in Table 28 depend on total output and not on 

individual plant sizes. Given that the task at hand is to esti~ 

mate incremental costs, the marginal licensing fees are esti~ 

mated at between $0.05-$0.09 per Ib. range, that is, in the 

lower rate step function. The reason for this is that the U.S. 

production of expanded tobacco exceeds the limits for the 

break in the licensing rates. An average of $0.07 per Ib. has 

been used to estimated licensing costs. 

In addition to these licensing fees, the patent holders for the 

processes also offer a trainingitechnical assistance package 

of $0.5 million. These costs have not been considered since 

these packages are purchased mostly overseas. Given the 

widespread use of expanded tobacco in the U S. there 

appears no need to include these costs. 

Labor Requirements and Costs 

Labor requirements vary depending on the nature and 

capacity of the expanded tobacco plant These labor 

requiremenis are presented in Table 29 The labor costs per 

lb of expanded tobacco are also presented in Table 29 

The labor costs use average hourly wages of $15 84 per 

hour as of June 1986 and 6,000 hours of plant operation 

per year Again manufacturing efficiency rates of 70 

percent are assumed following Dr Max Samfields writings zo 

Other Operating Costs 

In addition to the labor and licensing costs, other operating 

costs include electricity and oil heat costs. The requirements 

of electricity range from 0.09-0.155 kilowatt hours per kib 

gram of tobacco saved, while residual oil No 5 for heating 

purposes was estimated as ranging from 0.085-0 15 liters of 

residual oriper kilogram of tobacco saved 

These costs have been evaluated in Table 30 at September. 

1986 prices of 4.99 cents per kilowatt hours and 28.1 cents 

per gallon for the wholesale price of residual oil No. 5 2' 

The resulting costs of electricity and residual oil are 1.89 

cents per kg. of tobacco saved. 

'OMax Sarnfield 'Effecl of Makrng Machine and Process Varrahlrs 017 

!he Fiilrng Power of Tobacco Pari I " Tobacco Joiirna! !nfcrnafional, 

Apirl. 1980, p 356 

1986 

"US Deparirneril of Energy. Morilhiy Energy Rcvicw SclccLcd !Sssucs. 

85 
Table 29. Labor Requirements and Costs for Tobacco Expansion Processes 

- - 

Type of Plants I Integrated Integrated Free Standing 

Capacity 

(lbs. per hour) 

Staff Type: 

Manager 

Superintendents 

Supervisors 

Trained Operators 

Substitute Operators 

General Labor 

Cleaners 

Drivers 

Back-up Drivers 

TOTAL 

Labor Costs per lb. 

of Expanded Tobacco 

1,500 6,000 6,000 

Number of Staff per Shift 

0 

213 

2 

0 

0 

11 3 

1 

2 

113 

1 

3 

213 2 

0 2/3 

15 213 21 32 

$0.236 $0.079 $0.120 ~~ 

Source: Selected interviews with cigarette manufacturers. 

Cost Summary 

The total incremental costs associated with the use of 

expanded tobacco are presented in Table 31. As a consequence of the increased use of expanded tobacco costs, 

decreases in costs amounting to 1 .O percent of the cigarette 

wholesale price are realized. While the use of expanded 

tobacco affects the taste of cigarettes, these effects are 

outside the scope of this study 

A final comment concerns the impact of the compliance 

period for effecting the required changes to reduce cigarette 

ignition propensity. The lack of industrial capacity available 

for doubling the rate of use of expanded tobacco makes it 

impossible to effect these changes in the short run. A grace 

period of 3-4 years IS required for this option. 
Table 30. Incremental Costs of Expanded Tobacco - 1986 

(per 1,000 Cigarettes) 

Incremental in Costs Over the Current 25 Percent 

Expanded Tobacco in Blend 

Percent 

Expanded Capital Costs Electricity 

Tobacco Purchased of Facility and 

in Blend Leaf and Licensing Labor Residual 

(B) Costs Equipment Fees costs Oil Costs Total 

Domestic Other 

costs costs 

Leaf Tobacco 

~ _____~ ~ 

__ __ -. 2 5' .. .- 

50 - 0.263 - 0.200 +0.018 +o ,020 +0.023 +o .002 -0.400 

* Represents current conditions in the industry 

Table 31. Summary of Incremental Cost Changes of Expanded Tobacco - 1986 

(per 1,000 Cigarettes) 

Incremental Costs from Doubling the Current 25 

Percent Expanded Tobacco in Blend 

As Percentage of 

Cost Components costs Component Costs 

Domestic Leaf Costs 

Paper 

Federal Excise Tax 

All Other Costs 

$ - 0.263 

0.0 

0.0 

$-0.137 

-12.73% 

0.0 

0.0 

-0.65% 

~ ~ 

TOTAL $-0.400 -1.16% 

87 

Methods Controlling for Porosity and Permeability 

To achieve the desired porosity. calcium carbonate is added 

to the cellulose fibers after the beating and refining process. 

The calcium carbonate particles constitute 21~38 percent of 

the weight of the final paper. The permeability of the paper 

is controlled by adjusting the amount of calcium carbonate 

among other methods. 

rette paper is perforated by means of an electric spark at 

high voltages. The perforated holes have 20-50 microns of 

diameter, and their spacing and diameter determine the 

degree of permeability. 

If an extreme degree of permeability is required. the ciga~ 

Cigarette Paper and Its Manufacturing 

Paper use in cigarette manufacturing comes in 24~26 

gramdm2 basis weight with tensile strength of 3 kg. Its 

permeability varies substantially from 12 to 72 cmimin. cbar 

Coresta depending on cigarette design specifications. The 

cigarette paper is produced in bobbins of 24.5-28mm width 

and 6.000-9.000 meters length. Nearly 100,000 cigarettes are 

manufactured per bobbin of cigarette paper. 

Samfield2' provides the description of the manufacturing 

process described next. The basic raw material in the 

production of cigarette paper is flax straw, or fibers that are 

a by-product of the linen seed harvested for linseed oil. The 

flax straw passes through the following industrial operations 

at the paper plant: 1) decortication, 2) pulping, 3) bleaching, 

4) beating and refining. 5) paper forming, 6) drying and 

impregnation and 7) slitting. Decortication involves the 

removal of the inner portion of the stalk and the flax plants, 

called shive flax. Pulping involves removal of lignin. pectin 

and hemicelluloses which are hound together with the flax. 

Pulp for cigarette paper uses the kraft system, which 

involves beating the tow with sodium hydroxide and sodium 

sulfide for several hours at temperatures exceeding 14OOC. 

The bleaching process uses an aqueous solution of chlorine 

followed by sodium hydroxide and sodium hypochlorite. 

After bleaching. the aqueous suspension of pulp is beaten 

for several hours in a Holland beater, a rotating cylinder 

studded with metal bars. After beating, calcium carbonate is 

added to achieve opacity and porosity, and next the fiber 

web is formed in the paper forming process by filtering the 

suspension of fiber and filler through wire screens. Next, the 

paper is dried through rotating steam-heated cylinders, after 

which alkali metal citrates are added to control the burning 

rate of the cigarette. The impregnated paper is then molded 

into rolls after being dried and next is cut into bobbins of 

finished paper 

'2Max Samheid "cigarette Paper IS an important ingredient." Tobacco 

Journal tnteinatronai, May, 1972 p. 390 

Raw Material Components 

The raw material components of the cigarette paper are the 

flax fiber, the calcium carbonate and the alkali metal citrates 

among others Their relative proportions of the weight of the 

cigarette paper are as follows 

as Percent of Weight of 

Cigarette Paper 

Component Range __ Mean 

Flax Fiber 62% -72 67% 

Calcium Carbonate 21-38 29% 

Alkali Metal Citrates 05-20 125 

Miscellaneous 2 2 

133-851 0 - 87 - 4 QL 3 

89 
Paper Thickness Options 

The paper options to be costed include increasing the basis 

weight of the cigarette paper from the conventional basis 

weight of 24 gramsim' to basis weights corresponding to a 

doubling of cigarette paper thickness. Since a doubling of 

the cigarette paper results in an 8~fold increase in stiffness 

(with its concommitant manufacturing problems), the 

following equation, from Ecusta sources,23 was used to 

develop specifications of heavy weight paper comparable to 

doubling paper thickness: 

T = A (BW) + b 

where 

T = cigarette paper thickness (mm) 

BW = basis weight (g/m2) 

A = .00136mm mz/g (experimentally 

b = .00176mm (experimentally determined) 

According to the above formula, a doubling of paper thickness would correspond to basis weight of 49 grams/m2. 

Hwever, given that Ecusta has developed heavyweight 

paper of 45 gramsim', it was decided to take advantage of 

this opportunity and analyze heavyweight paper of 45 and 

32 grams/m2.*' 

comprised of flax and calcium carbonate can obtain equal 

desired puff counts and ashing characteristics as conventional basis cigarette paper after addition of burning chem~ 

icals. In addition, the firms claims that "heavyweight cigarette 

papers offer improved quality parameters. including 

enhanced opacity, appearance, tensile, and puncture resistance. Additionally, cigarettes exhibit improved rod firmness 

at equivalent rod weights. The increased thickness and stiffness of heavyweight cigarette paper can lead to significant 

cost reductions by decreasing tobacco weight and/or 

increasing utilization of expanded 

heavyweight paper sizes are costed out next. 

'Ycusta. "Ecusta Heavyweight Cigarette Papers. " Pisgah Forest, North 

Carolina, April, 1976. 

'"he 32grams/m2 paper corresponds roughly to one 01 the Kimberly

y 

Clark models (KC-1) currently under testing at the National Bureau of 

Standards. A second Kimberly-Clark model (KC.2) which uses 6mm 

wide slnps of dense non~pourous paper spaced 36mm apart along 

the crgarette's length, has been termed by the Kimberly-Clark to be 

non-manufacturable in the near and medium term. 

determined) 

Ecusta claims that its heavyweight cigarette paper 

These two 

Z5Ecusta, Op. Cit.. page 2 

Incremental Cost of Increased Paper 

Thickness 

The costs associated with changes in paper thickness 

include changes in paper manufacturing costs (including 

costs for adjusting porosityiperrneability) and cigarette 

manufacturing costs including requirements for increased 

adhesives, and paper bobbin changes, among others. At 

the outset, it should be recognized that no changes in 

tobacco weight are contemplated in the change in paper 

thickness. At the same time, it is desired to hold constant 

other factors that influence taste. 

Cost Structure 

The manufacture of cigarette paper is highly specialized; 

only a small number of paper mills devote themselves to this 

paper manufacturing endeavor. A detailed cost structure 

similar to the one developed for cigarette manufacturing in 

Chapter 2 is unavailable due to the small number of ciga~ 

rette paper manufacturers and the confidentiality of the 

industry. 

Instead, the cost analysis of the paper thickness options 

relies on some basic cost facts about the paper industry 

published in the literature26 and summarized in Table 32. 

One important fact is the assumption that 59.3 percent of the 

supply price of paper products corresponds to variable 

operating costs, with capital costs accounting for 32.2 

percent of the supply price. These assumptions regarding 

the relative proportions of operating and capital costs are 

used in the cost analysis presented in this chapter, 

Paper Manufacturing Costs 

The cigarette paper manufacturing costs include both operating and capital costs. At present increases in paper thickness cannot be accommodated without significant increases 

in the capacity of the cigarette paper industry. Cigarette 

manufacturing peaked in 1981. when 736.5 billion cigarettes 

were manufactured for domestic consumption and export. 

As of June 30, 1986, the cigarette production was 89.3 

percent of peak 1981 production rate,2' denoting a 10.7 

percent available capacity for accommodating increases in 

paper requirements due to increases in cigarette paper 

thickness. The extra capacity requirements of increased 

paper thickness are presented in Table 33. 

2'These proportrons of capital and operating costs come from both 

Barry Bosworth 'Xcfiwty Creation in Baac~Materials lndustrres. " 

Brookrngs Papers on Economic Activrfy, Vol. 2: 1976, and from Biookhaven National laboratory. A Process Model of the U.S. Pulp and 

Paper Industry, long Island, New York, April, 1980. 

27The cigarette prodoctm figures come from the U.S Department of 

Agnculiuie. Economic Research Service. Tobacco: Situation and 

Outlook Report, TS-195. June, 1986. 
Table 32. Relative Cost Structure of Pulp and Paper Industry - 1975 

Operatine Costs 59.38 

Fiber 

Other Raw Materials 

Direct Labor 

Energy 

Overheads 

Environmental and OSHA Expenses 

General Sales and Administrative Expenses 

14.8% 

13.8% 

7.6% 

3.6% 

8.3% 

1.9% 

9.3% 

Capital Costs 32.2% 

Plant Facility and Equipment 

OSHA-related Equipment 

Pollution Abatement Equipment 

Interest on Working Capital 

Net Incomes 

27.6% 

0.7% 

3.9% 

2.0% 

6.5% 

100.0% 

Sources: Energy and raw materials costs come from Brookhaven National 

Laboratory. 

Prepared for the U.S. Department of Energy, April, 1980. 

The net income proportions come from the Internal Revenue Service. 

Statistics of Income. Corporation Income Tax Returns, 1981. 

All other costs come from Barry Bosworth "Capacity Creation in Basic 

Material Industries." Brookines Papers on Economic Activity, Vol. 

2, 1976, p. 320. 

A Process Model of the U.S. Pulp and Paper Industry. 

Operating Costs 

The estimation of the operating costs relies on the assurnp 

tion documented in Table 32, that 593 percent of the 

supply price of cigarette paper are operating costs If the 

increases in operating costs are assumed to be proportional 

to the basis weight of paper then the changes in basic 

manufacturing costs of cigarette paper may be estimated as 

91 
Table 33. Changes in Cigarette Paper Industry Capacity Requirements - 1986 

Increased Paper Available Incremental 

Changes in Basis Production Industrial Capacity 

Weight to Requirements Capacity Requirements 

(1) (2) (3) (4) - (2) - (3) 

32 grams/m2 33.3% 10.7% 22.6% 

45 grams/m2 a7.5% 10.7% 76.8% 

a Estimated in reference to the 1981 peak of cigarette paper production level. 

Incremental Operating Costs 

per 1,000 Cigarettes 

of Cigarette Paper - - 

- ratio of increase in basis weight to the 

conventinal basis weight of 24 grams/rn2 

At paper costs of $0 17 per 1,000 cigarettes (see Table 5), 

the incremental basis costs of manufacturing cigarette paper 

are $0 04 (for the 32 grams/m2 heavyweight paper) and 

$0 105 (for the 45 grams/mz) These basic costs must be 

modified by the specialized processes for increasing the 

porosity/ permeability of the heavyweight paper 

Capacity Costs 

As estimated earlier in Table 33, increases in capacity 

ranging from 22 6 to’76 8 percent are required by the 

paper thickness options analyzed The following formula is 

used to estimate the capital costs 

Incremental Capital Costs 

per 1.000 Cigarettes 

of Cigarette Paper - - 

f If If 1 

Proportion Proportion Costs of 

Requirements Cigarettes 

At capital cost proportions of 0.322 (see Table 32) and 

paper costs of $0.17 per 1,000 cigarettes, the incremental 

capital costs due to increased capacity are $0.012 per 

1,000 cigarettes for the paper with 32 grams/m2 basis 

weight and $0.042 per 1,000 cigarettes for the heavier 

paper with 45 grarns/rn* basis weight. , 
An Alternative Approach 

Ecustas marketing materials. already referred to present a 

cost formula for estimating the cost changes due to 

increasing the basis weight of cigarette paper The Ecusta 

formula is ** 

Cost Change 

Billion Cigarettes 

= 2.2046 (ABS)(L)(W)(C,) i per 1 

where. 

ABW 

L 

W 

C@ 

= (5W,, ~ BW,) or difference in cigarette 

paper basis weight in grams/m2 

length of cigarette psper (or tobacco 

column, in rnm 

width of paper bobbin. in mm. 

cost of paper per lb 

Assuming conventional values of 65mm paper length, paper 

width of 27.5mm and cigarette paper costs of $1.75 per Ib.. 

increases in basis weight from the conventional 24 

grams/m2 to 32 and 45 grams/mz result in cost increases of 

$0.055 and $0.145 respectively per 1,000 cigarettes. That 

is. the Ecusta marketing materials assume cost increases 

proportional to the basis weight of the cigarette paper. 

Adjustments for Porosity 

To the earlier basic cigarette paper manufacturing costs. we 

must add the cost of special adjustments for porosity. One 

adjustment would involve doubling the amount of calcium 

carbonate in the paper, amount which now constitutes 29% 

percent of the weight of the paper. 

Assuming a basis weight of 24 gramsh' for the cigarette 

paper, and length and widths of 65mm and 27.5mm 

respectively, the weight of the cigarette paper is estimated 

as 0.09438 lbs. per 1,000 cigarette^.^^ The increased costs 

of doubling the calcium carbonate in the paper to increase 

porosity is estimated from the following equation. 

'8Ecusta. Op C!f , page 2 

%ee fhe lormula mesenfed in Table 5 

Increase in Calcium 

Carbonate Costs per 

1,000 Cigarettes per 1,000 

Cigarettes 

Carbonate 1,000 Cigarettes Carbonate 

Cigarette 

Assuming 100 percent increases in calcium carbonate 

and a price of $0 50 per Ib the following cost increment 

per 1 000 cigarettes results 

Increase in Calcium 

$0.0139 

In addition to the adjustment in calcium carbonate, another 

possible adjustment in permeability concerris the use of 

electrostatic or microlaser perforating equipment to achieve 

high degrees of permeability in excess of 70 Coresta. 

Comparisons of the costs of cigarette paper reveals a 

premium of $3.00 per bobbin of highly permeable paper 30 

This permeability premium gets translated into an extra cost 

of $0.03 per 1,000 cigarettes (assuming 100,000 cigarettes 

per bobbin) 

In conclusion. adjustments for permeabilityiporosity will 

increase the costs of cigarette paper by $0.014 to $0.03 per 

1,000 cigarettes depending on the method chosen to make 

the necessary adjustments for porosityipermeabiiity 

Cigarette Manufacturing Cost Changes 

In addition to the costs of cigarette paper increases in 

paper thickness creates some unique manufacturing prob 

'We owe fhrs observation io Di Wilham Selke lormerly Vce Presidenf 

Group R&D of fhe Kmberfy Clark Corporation 

93 
lems with their concommitant increases in manufacturing 

costs These manufacturing problems concern the need for 

increased amounts of adhesives more frequent changes in 

paper bobbins increases in flavoring and finally the possible 

slowing down of cigarette manufacturing equipment speeds 

Increased Costs 

due to Paper 

Bobbin Changes 

Increased Amount of Adhesives 

The heavier or thicker the paper the greater the need for 

adhesives. Table 5 presents the current cost of adhesives. 

Doubling the amount of adhesives will add 0.043 per 1,000 

cigarettes. 

Interview responses with equipment manufacturers 

revealed the use of different practices regarding paper 

bobbin changes. Equipment manufacturers claim a waste 

loss of 20 cigarettes per bobbin change, but they also 

claimed that some machine operators slow down the equipment to half the operating speeds during ten second 

periods for the purpose of effecting bobbin changes. Each 

of these alternatives is costed out next 

Assuming current production levels of 662.0 billion 

cigarettes and bobbin lengths corresponding to 100,000 

cigarettes per bobbin, the number of bobbin changes per 

year amounts to 6.62 million times. At a rate of 20 cigarettes 

lost per bobbin change, nearly 132.4 million cigarettes are 

lost each year during bobbin changes, resulting in an 

increase in manufacturing costs of 5185,360 annually at 

manufacturing costs of $1.40 per 1,000 cigarettes (as shown 

in Table 4). The costs per bobbin change amounted to 

50.029 in 1986 dollars. 

The increase costs due to manufacturing cigarettes with 

cigarette paper of basis weight greater than 24 grarnsirn' IS 

estimated as follows: 

X 

Bwh = __ 

BWO 

Current Cigarette Production 

Cigarettes per Paper Bobbin 

Operating Cost 1 

Change 1 X Per Bobbii 

For new basis weights of cigarette paper of 32 and 45 

gramsim'. the increased costs per 1,000 cigarettes due to 

bobbin changes correspond to 50 0004 and $0 0005 

respectively 

If the machines are slowed down to half speeds during 

ten seconds each bobbin change, the costs per bobbin 

change are 23'13 greater than the figures above (assuming 

0.70 manufacturing efficiency rates) or incrementat costs 

due to bobbin changes of $0.0093 and $0.012 for cigarette 

paper of 32 and 45 grams/rn* basis weight respectively. 

Increases in Flavoring 

Given the increased thickness of the paper, it will be necessary to add flavoring to overcome the taste induced by the 

increased paper. While it is generally easier and less costlier 

to add the flavor to the paper in the cigarette paper 

manufacturing stage, the lack of detailed information on the 

cost structure of paper manufacturers precludes the estima~ 

tion of these costs at the paper manufacturing stage. 

Instead. the extra flavor has been costed as if added 

during the casing process of cigarette manufacturing. a 

doubling of the flavoring costs are estimated to be required 

to overcome the taste of the extra paper. These flavoring 

costs were earlier presented in Table 5. 

Effect on Performance Speeds of Equipment and Their 

Relationship to Implementation Periods 

There are other manufacturing problems associated with 

increases in cigarette paper thickness It appears that for the 

thicker paper to be used in today's cigarette maker 

machines, these machines would have to be slowed 

considerably. In the case of doubling the paper thickness. 

the cigarette maker machines would have to be slowed 

down to approximately half their performance speeds Two 

cases are discussed next: the effects on manufacturing 

speeds of a 4-year grace period versus the effects of instam 

taneous implementation of regulations on cigarette ignition 

propensity. 

Effects of a 4-Year Grace Period. 

Under a 4~year grace period, it is assumed that the ciga~ 

rette manufacturers will continue normal replacement proce~ 

dures during the first four years of the grace period and will 

replace all the cigarette making equipment in the fifth year, 

that is. in the first year of operation under the new regu~ 

lations. 

ments of the cigarette manufacturing industry were estimated at 438 cigarette makeriplug makers and 438 

cigarette packers. A seven~year depreciation period has 

been assumed in accordance with the selected interviews 

conducted with equipment manufacturers, even though 

there are circumstances of new equipment replacing equipment which was only 2'/2 years old. Assuming a seven-year 

replacement period, the normal replacement rate was 

assumed to be 63 cigarette maker machines annua1ly.J' At 

the outset, it was determined that the performance speeds 

Earlier in Chapter 3, the equipment replacement require- 

?'The scant dala available on the aye vmaye of the equipment and the 

contrdential nafure of this data prevented the use of more Sophisti 

cafed analysis on !his issue 
of the cigarette maker machines would be the equipment 

most affected by the use of heavier paper Table 34 

presents the annual equipment replacement flows of cigarette inakers under the 4~year grace period and under 

normal replacement. 

Given the adverse effect of heavier paper on the performance speeds of cigarette maker machines. it is reasonable 

to assume that the cigai&te maker machines will be rnodiL 

tied in the intervening period to accept the heavier paper 

without having to slow down the performance speeds. 

Given that the R&D gestation periods in the cigarette 

industry average 3~4 years, the 4-year grace period IS long 

enough to enable new cigarette maker machines to be 

developed 

Costs of Modification of Cigarette Maker Machines. 

Earlier in Chapter 3, the costs of current cigarette 

makeriplug maker combinations was estimated as 

5675,000. The cigarette maker itself is priced around 

$550,000 although some models run into $600,000. The 

task of this section is to estimate the costs of the modified 

cigarette maker machines to be installed after the grace 

period is ends. 

The estimates of the cost of the new equipment rely on 

information on the pay-out period of R&D expenditures on 

machinery. Based on the annual McGraw-Hill surveys of 

plans for investments in plant and equipment, Edwin mans^ 

field shows that 51 percent of the U.S. manufacturers of 

machinery expect pay-out periods for their R&D outlays of 

three years or less.32 This short pay~out period provides. as 

noted by Man~field,~~ evidence that most R&D expenditures 

are geared towards improvements or moderate changes in 

existing products. 

The R&D costs of equipment modifications are then esti 

mated from the following formula 

Machines 

Machine 

The number of annual cigarette maker machines sold annu 

ally under normal replacement is estimated as 63 machines 

(assuming 7 years as average life of cigarette manufacturing 

equipment ) The net income after taxes for specialized 

machinery IS estimated as 4 5 percent of sales from Internal 

Revenue Service sources 34 Assuming average pay out 

periods of three years and sales prices of $550 000 per 

cigarette maker the R&D costs of these equipment combi 

nations are estimated as 

E = (3)(0,045)(63)(550.000) = $4,677,750 

costs 

or $10.680 per equipment combination assuming total 

replacement needs of 438 machines These R&D costs 

constitute 1 9 percent of the original costs of the cigarette 

maker machine 

However, the equipment manufacturers will also incur 

costs other than R&D in developing the equipment inn ova^ 

tions required. The most accepted R&D definition IS that of 

the National Science Foundation (NSF), which specifies R&D 

as including "the development of designs for special 

manufacturing and tools but excluding tool making and tool 

research, development of specifications and prototypes. but 

excludes tooling and manufacturing facilities, manufacturing 

start~up and marketing startwp costs R&D costs as a 

percentage of the total costs of innovation range from 51.6 

percent in machinery to SO 7 percent in electroni~s.~~ Thus. 

R&D costs constitute approximately half of the total costs of 

the innovation. 

In light of this discussion. it may be concluded that the 

total costs of the requried innovation may constitute 3.8 

percent of the original machine costs, which equals $21.360 

per machine. The costs of the new cigarette makers are 

estimated to be $571.360 per machine Thus. it is estimated 

that the R&D program costs would result in maintaining the 

high performance levels of the current cigarette maker 

machines. The incremental costs of replacing the cigarette 

maker machines at the conclusion of the grace period are 

presented in Table 34. The incremental costs are estimated 

as the present values of replacement requirements over the 

normal replacement needs of the cigarette manufacturing 

~ndustry.~' 

The NSF definition of R&D includes applied 

of Income. Government Printing Olfice, Washrgton, D C. Selecrcd 

Issues 1978~1981 

Wuored in E Mansheld, et ai, Op 01, page 122~123 

3Vbid, page 123 

I'The nstailatm costs of new machines versus irormai ieplacemeirl of 

cigarerre maker machines are assumed to cancei each other 

32Edwn Mansiield. et ai, Research and Innovation !n the Modern 

"Ibid. page 8. 

Corporation. W W Norton. 1971, page 7 

95 
Table 34. Costs of Replacing Cigarette Makers Under a 4-Year Grace Period - 

1986 

~ ~~ 

No. of Ciaarette Maker Machines to be Replaced 

Under 4-Year Under Normal Increments 

Year Grace Period Replacement 

1 

n 

L 

3 

4 

5 

6 

7 

8 

9 

10 

.. 

11 

12 

Present Value of 

Replacement Costs 

(millions of 1986 

do 1 lar s ) 

Present Value of 

Replacement Costs 

per 1,000 CigarettesC 

(1986 dollars) 

63 

63 

63 

63 

438 

0 

0 

0 

0 

0 

0 

0 

$302.118" 

$ 0.038 

63 

63 

63 

63 

63 

63 

63 

63 

63 

63 

63 

63 

$273. 880b 

$ 0.034 

0 

0 

0 

0 

375 

-63 

-63 

-63 

-63 

- 63 

-63 

-63 

$28.838 

$ 0.004 

Notes: 

a Estimated assuming cigarette maker costs of $550,000 for the first four 

years and $571,360 for the equipment modification of Year 5, and 

discount rates of 8 percent. 

b Estimated assuming cigarette maker costs of $550,000, that Is, assuming 

no need to modify equipment, and 8 percent discount rates. 

c Estimated by dividing the present value figures by the production of 

cigarettes during the 12-year period (12 years x 663 billion cigarettes 

per year). 

96 

~.. 
Table 35. Incremental Costs Associated with Paper Thickness Under 4-Year 

Grace Period Implementation - 1986 

(per 1,000 cigarettes) 

Basis WeiRht of Cigarette Paper 

32 grams/mz 45 grams/mz 

Increments in Basis Weight (%) 

Paper Costs 

Manufacturing Capital Costs 

Manufacturing Operating Costs 

Adjustments for Porosity 

Cigarette Manufacturing Costs 

Increased Use of Adhesives 

Increased Bobbin Changes 

Increased Flavor Additives 

Incremental Costs of New Equipment 

Total 

As Percent of Cigarette 

Wholesale Price 

33 1/3 

$0.012 

$0.04 

$0.014 - $0.03 

$0.043 

$0.016 

$0.004 

$0.0004 - $0.0093 

$0.129 - $0.154 

0.4% - 0.5% 

a7 1/2% 

$0.042 

$0.105 

$0.014 - $0.03 

$0.043 

$0.016 

$0.004 

$0.0005 - $0.012 

$0.225 - $0.252 

0.7% - $0.8% 

Instantaneous Implementation of Regulations 

As shown earlier in this chapter, the cigarette paper industry 

does not possess the capacity required to implement instantaneously the option of doubling paper thickness. In spite of 

this major impediment to the instantaneous implementation 

of the option, some cost estimates are presented next on 

the costs to be incurred if no grace period is allowed under 

the self~extinguishing cigarette regulations. 

Under the current equipment configurations doubling the 

paper thickness (i.e., 45 gramsim' basis weight) will require 

slowing down the cigarette maker machines to half their 

performance speeds, while the effect of using the 32 

grarnsim2 basis weight paper will slow down the machines 

to 75 percent of their performance speeds. One major 

complication is that the industry does not have extra 

machines to substitute for the slow down in their performance speeds. For example, slowing down the machines 

by 50 percent would require doubling the number of cigarette maker machines, requirements that far exceed the 

inventory of equipment. 

Assuming that the Shortage in machines can be overcome 

by purchasing new machines, the costs atfected by the 

slowdown in machines are cigarette maker labor and equipment depreciation. which amount to $0 468 per 1,000 

cigarettes (see Table 4). Doubling the paper thickness will 

require $0.468 extra of labor and depreciation during the 

first four years before the new cigarette maker machines 

become available. Increasing the paper thickness by using 

paper with 32 gramsim' of basis weight will increase labor 

and depreciation cost by $0.234 per 1,000 cigarettes during 

the first four years. The present value of these costs are 

$0.127 per 1,000 cigarettes for the 45 gramsimz basis 

weight paper and $0.064 per 1,000 cigarettes for the 32 

gramslm2 01 basis weight paper.3a To these labor and 

3~Arnartired over !he 1Dyear perrod shown In Table 34 a! eight percrn! 

discount. 

97 
depreciation costs must be added the new equipment costs 

of 50.004 per 1,000 cigarettes presented in Table 34. 

However, it is unrealistic to expect that an instantaneous 

implementation IS possible. Neither does the cigarette paper 

industry have the required capacity, nor does the cigarette 

manufacturing industry have the extra cigarette maker 

machinery necessary to substitute for the slowing down of 

the performance speeds of the current machines. 

cost Summary 

Table 35 presents the summary of incremental costs 

associated with paper thickness options, while Table 36 

presents a cost summary that interfaces with the National 

Bureau of Standards' economic impact model requirements 

Mos! of the costs are associated with the manufacturing of 

heavyweight cigarette paper. 

Table 36. Summary of Incremental Costs Associated With Paper Thickness Under 

4-Year Grace Period Implementation - 1986 

(per 1,000 Cigarettes) 

Basis Weight of Cigarette Paper 

32 grams/mz 45 grams/m2 

AS AS 

of Component of Component 

costs Percentage costs Percentage 

Cost Components costs costs 

Domestic Tobacco Leaf 0 0% 0 0% 

Paper $0.066-$0.082 38.8%-48.2% $0.161-$0.177 94.7%-104.1% 

Federal Excise Tax 0 0% 0 0% 

Other Costs $0.063-$0.072 0.3%-0.3% $0.064-$0.075 0.3%-0.3% 

Total Costs $0.129-$0.154 0.4%-0.5% $0.225-$0.252 0.7%-0.8% 
Economic 

Sector Data 

for Modeling 

the Impact 

of Less 

Ignition-Prone 

Cigarettes 

Estimates of the 

Economic and NonEconomic Health 

Consequences of 

Smoking, Smoking 

Cessation, and 

Reductions in the 

Amount Smoked 

GERRY OSTER 

Policy Analysis Inc. 

99 

Estimates of the Economic and 

Non-Economic Health Consequences 

of Smoking, Smoking Cessation, 

and Reductions in the Amount 

Smoked, Gerry Oster .......... 

1. Introduction.. ............ 

2. Losses Attributable to Smoking ... 

3. Benefits Attributable to Smoking 

Cessation ................... 

4. Benefits Attributable to Reductions 

in the Amount Smoked ....... 

5. References ............. - 

List of Tables 

Table 1. 

Table 2. 

Table 3. 

Additional Expected Lifetime 

Medical Care Costs for the 

Treatment of Srnoking~Related 

Diseases Due to Smoking for 

Light, Moderate, and Heavy 

Smokers ............ 

Reductions in Years of Life 

Expectancy Due to Smoking foi 

Light, Moderate, and Heavy 

Smokers. ........... 

Reductions in Expected Lifetime 

Medical Care Costs for the 

Treatment of Smoking~Related 

Diseases Due to Smoking 

Cessation for Light, Moderate, and 

Heavy Smokers. ........ 

Table 4. 

.99 

103 Table 5. 

105 

109 

113 

115 

Table 6. 

106 

107 

110 

Increase in Years of Life 

Expectancy Due to Smoking 

Cessation for Light, Moderate. and 

Heavy Smokers. ......... ,111 

Reductions in Expected Lifetime 

Medical Care Costs for the 

Treatment of Smoking-Related 

Diseases Due to Reductions in the 

Amount Smoked from Moderate to 

Light Smoking and from Heavy to 

Moderate Smoking .... 113 

Increases iri Years of Life 

Expectancy Due to Reductions in 

the Amount Smoked from Moderate 

to Light Smoking and from Heavy 

to Moderate Smoking ..... 114 

101 

In this report, we present our estimates of the economic and 

noneconomic health consequences of smoking and changes 

in smoking habits, and describe the methods that we used 

to calculate: (1) losses related to smoking (Tables 1 and 2); 

(2) benefits related to smoking cessation (Tables 3 and 4), 

and (3) benefits related to reductions in the amount smoked 

(Tables 5 and 6). These losses and benefits are measured in 

terms of changes in individual* expected lifetime costs for 

the medical treatment of smoking-related diseases, and 

changes in years of life expectancy Estimates of changes in 

medical care costs have not been adjusted to reflect the fact 

that smokers as a group, because of their shorter life expec~ 

tancies, may incur lower costs over a lifetime for the treatment of diseases unrelated to smoking. 

All estimates were calculated separately for men and 

women between the ages of 35 and 79 in 5~year age incre~ 

ments. Estimates of losses related to smoking and benefits 

related to smoking cessation were calculated separately for 

men and women who were light (1~19 cigarettes per day), 

moderate (20~39 cigarettes per day), and heavy (40 or more 

cigarettes per day) smokers. Estimates of benefits related to 

reductions in the amount smoked were calculated separately 

for changes in smoking from moderate to light. and from 

heavy to moderate. 

Losses and benefits were tallied separately at annual 

discount rates of 0 percent, 2.5 percent. 5 percent, and 10 

percent. Future medical care costs (used in the calculation 

of changes in expected lifetime costs for the treatment of 

smokiny~related diseases), and future annual probabilities of 

survival (used in the calciilation of changes in life expec~ 

tancy) were both discounted. Estimates of the present value 

of changes in expected liletime medical care costs are 

expressed in 1986 dollars. 

Estimates of changes in expected lifetime medical care 

costs for the treatment of smoking-related diseases were 

calculated using methods similar to those described in [I] 

Estimates of changes in life expectancy due to smoking. 

smoking cessation. and reductions in the amount smoked 

were calculated using methods similar to those described in 

[Z]. Where the calculation techniques used in this report 

have been identical to those used in these earlier studies, 

we have provided only a brief overview of methods. We 

present a more detailed description when these techniques 

were significantly modified, or when new techniques were 

used 

103 

I 2.Losses Attributable to 

Smoking 

Increases in Costs for the Medical 

Treatment of Smoking-Related Diseases 

Estimates of the economic loss attributable to smoking 

(measured in terms of additional lifetime costs for the treatment of smoking~related diseases) are presented in Table 1. 

We calculated the additional expected lifetime medical 

care costs for the treatment of smoking~related diseases by 

combining age-and-sex specific estimates of the incidencebased costs of the major three such diseases (lung cancer, 

coronary hear disease, and emphysema) with estimates of 

smokers' increased likelihood (1.e.. excess risk) of developing 

them in each remaining year of life. Using these estimates. 

we calculated the expected lifetime costs of treating these 

diseases for smokers and for nonsmokers respectively. The 

difference in these costs (i.e., between smokers and nonsmokers) represents the economic loss attributable to 

smoking. The methods and data used in these calculations 

are described in detail in [I] 

Reductions in Life Expectancy 

Reductions in life expectancy as a result of cigarette 

smoking are presented in Table 2 To calculate these estimates we combined unpublished annual mortality rates for 

smokers and nonsmokers between the ages of 35 and 105 

years from the American Cancer Society (ACS) 25 State 

Cancer Prevention Study, with relative mortality rates for 

male light, moderate, and heavy smokers in the ACS study 

population [3] to calculate life expectancies for light smokers, 

moderate smokers, heavy smokers, and nonsmokers. 

Results reported in 131 indicate that the mean number of 

cigarettes smoked per day among smokers in the ACS study 

population was slightly more than 20 per day. We assumed, 

therefore, that the mortality rates for smokers presented in 

the unpublished ACS data represent the experience of 

moderate smokers. We calculated average relative mortality 

rates for light and heavy male smokers. compared to 

moderate male smokers, across all ages, using results 

reported in [3]. We assumed that relative mortality rates for 

light and heavy female smokers were the same as those of 

corresponding male smokers. We multiplied these relative 

mortality rates by age~and~sex~specific mortality rates for 

moderate smokers to calculate annual mortality rates for 

male and female light and heavy smokers of every age 

between 35 and 79 years. 

We then calculated life expectancies for light. moderate, 

and heavy smokers of every age between 35 and 79 years, 

and for nonsmokers at each of these ages, using annual 

probabilities of survival derived from corresponding annual 

mortality rates. The difference, at any given age, between the 

life expectancies of smokers and nonsmokers, represents the 

losses related to smoking measured in terms of the reduc~ 

tion in life expectancy. 

105 
Table 1. Additional Expected Lifetime Medical Care Costs for the Treatment of 

Smoking-Related Diseases Due to Smoking for Light (L), Moderate (M), and Heavy 

(H) Smokers, by Discount Rate, Sex and Age. 

Additional Expected Lifetime Hedical Care Costs for the Treatment of Smoking-Related Diseases 

Discounted 

at 0 Percent 

Discounted 

at 2.5 Percent 

Discounted Discounted 

at 5 Percent at 10 Percent 

Age/SeX 

Group L M H L M H L M H L M H 

Men 

35-39 

40-44 

45-49 

50-54 

55-59 

60-64 

65-69 

70-74 

75-79 

Women 

35-39 

40-44 

45-49 

50-54 

55-59 

60-64 

65-69 

70-74 

75-79 

$6,305 $10,785 $16,944 

6,209 10,590 16,502 

6,006 10,167 15,700 

5,612 9,360 14,235 

5,154 8,479 12,727 

4,612 7,483 11,139 

3,980 6,374 9,462 

3,226 5,158 7,684 

2,383 3,798 5,699 

$3,187 $ 5,774 $12,063 

3.138 5.621 11,320 

3;204 Si745 11;279 

3,081 5,512 10,832 

2.924 5.201 10.267 

2;720 4;771 91501 

2,401 4,156 8,371 

1,872 3,208 6,561 

1,365 2,325 4,802 

$2,760 $4,720 $7,416 

3,012 5,136 8,004 

3,205 5,425 8,337 

3,264 6,443 8,278 

3,247 5,341 8,017 

3,138 5,092 7,580 

2,907 4.657 6,912 

2,500 3,996 5,953 

1,952 3,111 4,669 

$1,286 $2,330 $4,869 

1.413 2.531 5,097 

1;593 2;857 Si609 

1,687 3,018 5,932 

1,747 3,107 6,133 

1,762 3,090 6,154 

1,685 2,917 5,075 

1.410 2.416 4.941 

11097 1;869 3;859 

$1,332 $2,278 $3,579 

1,594 2,718 4,236 

1,844 3,122 4,821 

2,014 3,359 5,108 

2,154 3,543 5,318 

2.227 3.614 5.379 

21180 31493 5;184 

1.989 3.180 4.738 

1,629 2,596 3;896 

$ 574 $1,039 $2,171 

698 1.251 2.519 

859 1;539 3;022 

981 1,755 3.449 

1,100 1,957 3;863 

1,195 2,096 4,175 

1,234 2.135 4.301 

1.086 1,862 3;807 

893 1,521 3,141 

$ 412 $ 705 $1,107 

567 967 1.507 

746 1,262 1;949 

909 1,516 2,305 

1,082 1,780 2,672 

1,249 2,026 3,016 

1,346 2,157 3,201 

1.339 2.141 3.189 

$ 156 $ 282 $ 589 

222 397 800 

310 555 1,091 

403 722 1.418 

512 910 1;796 

618 1,084 2,159 

716 1,239 2,496 

705 1,208 2,471 

625 1,065 2,199 

Note: All costs are expressed in 1986 dollars. See text for definitions of light, moderate, and heavy 

smokers. 

106 
Table 2. Reductions in Years of Life Expectancy Due to Smoking for Light (L), 

Moderate (M), and Heavy (H) Smokers, by Discount Rate, Sex and Age. 

Reductions in Years of Life Exwctancv 

Discounted 

at 0 Percent 

Discounted 

at 2.5 Percent 

Discounted 

at 5 Percent 

Discounted 

at 10 Percent 

Age/Sex 

Group L 'M H L M H L I4 H L M H 

Men 

35-39 4.69 

40-44 4.51 

4 5-49 4.20 

50-54 3.77 

55-59 3.26 

6 0-64 2.69 

6 5-69 2.07 

70-74 1.41 

75-79 .82 

Women 

35-39 2.04 

6.58 8.16 2.07 

6.35 7.88 2.22 

5.96 7.41 2.27 

5.43 6.80 2.22 

4.81 6.07 2.08 

4.10 5.24 1.85 

3.34 4.35 1.54 

2.53 3.40 1.12 

1.77 2.52 .69 

3.89 5.45 .88 

40-44 2.01 3.82 5.34 .97 

65-49 1.87 3.62 5.09 1.00 

50-54 1.68 3.36 4.76 .99 

55-59 1.44 

6 0-64 1.15 

65-69 .82 

70-74 .39 

75-79 - .Ol 

3.03 4.35 .93 

2.64 3.86 .81 

2.18 3.29 .64 

1.62 2.60 .35 

1.07 1.92 .05 

2.88 

3.08 

3.18 

3.16 

3.03 

2.79 

2.44 

1.96 

1.45 

1.57 

1.72 

1.80 

1.84 

1.81 

1.71 

1.53 

1.22 

.86 

3.58 1.01 

3.83 1.19 

3.96 1.31 

3.96 3.96 

3.84 1.39 

3.57 1.33 

3.17 1.17 

2.64 .91 

2.06 .59 

2.18 .41 

2.38 .50 

2.50 .56 

2.57 .61 

2.56 .62 

2.47 .59 

2.28 .50 

1.94 .31 

1.52 .07 

1.39 

1.63 

1.83 

1.38 

2.01 

1.98 

1.83 

1.56 

1.21 

.70 

.85 

.97 

1.07 

1.14 

1.16 

1.17 

.94 

.70 

1.74 .31 

2.03 .43 

2.28 .54 

1.95 .63 

2.55 .71 

2.54 .75 

2.39 .73 

2.10 .62 

1.21 .45 

.97 . 11 

1.17 .17 

1.33 .22 

1.48 .27 

1.60 .31 

1.66 .33 

1.64 .32 

1.48 .24 

1.22 .09 

.43 

.58 

.74 

.88 

1.01 

1.11 

1.13 

1.05 

.88 

.19 

.27 

.35 

.44 

.53 

.60 

.65 

.61 

.49 

.54 

.73 

.92 

1.11 

1.29 

1.42 

1.47 

1.41 

1.24 

.26 

.37 

.48 

.60 

.J3 

.84 

.94 

.93 

.84 

Note: See text for definitions of light, moderate, and heavy smokers. 

107 

Increases in Life Expectancy 

Estimates of the increase in life expectancy due to smoking 

cessation are presented in Table 4. They were calculated 

using mortality rates for light smokers, moderate smokers, 

heavy smokers, and nonsmokers derived from ACS data, 

and estimates of the relative decline in excess mortality for 

exsmokers in the years after quitting from [4]. We assumed 

that the relative decline in excess mortality for exsmokers in 

the years after quitting is the same for all exsmokers. regardless of cigarette consumption prior to quitting. For every age 

between 35 and 105 years, we calculated mortality rates for 

exsmokers who were previously light, moderate, and heavy 

smokers. 

Life expectancies were then calculated for exsmokers who 

were previously light, moderate and heavy smokers, for 

every age between 35 and 79 years, using annual probabilities of survival derived from annual mortality rates The differ^ 

ence, at any given age, between the life expectancy of 

smokers and exsmokers represents the added years of life 

expectancy attributable to smoking cessation. Note that 

among light smokers, added years of life expectancy are in 

some instances negative; this is probably a result of selec~ 

tion bias. 

Reductions in Costs for the Medical 

Treatment of Smoking-Related Diseases 

The benefits of smoking cessation for light. moderate, and 

heavy smokers, measured in terms of changes in lifetime 

costs for the treatment of smoking~related diseases, are 

presented in Table 3 

By combining incidence~based estimates of lifetime treatment costs for smoking~related diseases (lung cancer, coro~ 

nary heart disease, and emphysema) with estimates of 

exsmokers' probabilities of developing them, we calculated 

expected costs of medical treatment for smoking-related 

disease for exsmokers who were previously light. moderate, 

and heavy smokers. Techniques of disease costing are 

described above; the estimation of relative disease risk for 

exsmokers is described in detail in [l]. The difference 

between the expected lifetime costs of treatment of smokers 

and exsmokers at any given level of pre~cessation cigarette 

consumption represents the economic benefit attributable to 

smoking cessation. 

Note that, for any given discount rate, amount smoked, 

sex and age, the benefits of smoking cessation are always 

less the costs of smoking. since the elimination of marginal 

disease risk due to smoking cessation is not instantaneous. 

109 
Table 3. Reductions in Expected Lifetime Medical Care Costs for the Treatment 

of Smoking-Related Diseases Due to Smoking Cessation for Light (L), Moderate 

(M), and Heavy (H) Smokers, by Discount Rate, Sex and Age. 

Reductions in Expected Lifetime Medical Care Costs for the Treatment of Smoking-Related Diseases 

Discounted Discounted Discounted Discounted 

at 0 Percent at 2.5 Percent at 5 Percent at 10 Percent 

Age/Sex 

Group L M H L M H L M H L M H 

Men 

35-39 $ 4,825 $ 8,622 $13,419 $ 2,042 $ 3,649 $ 5,679 $ 940 $ 1,680 $ 2,615 $ 256 $ 458 $ 713 

40-44 4.615 7.984 12.233 2.141 .~ 3.714 5.691 1,074 1.857 2.846 331 573 878 

45-49 4;240 7;056 10;743 2,152 2;581 51452 1;166 1,940 2,954 413 688 1,047 

50-54 3,748 5,944 9,079 2,066 3,276 5,004 1,208 1,916 2,926 474 752 1,149 

55-59 3.118 0.710 7 ,..~ 358 _.~.. 1859 2 ~ I~~~ 808 4.386 .~ 1.163 1.757 2.745 528 797 1.245 

60-64 2:471 3,597 5,869 1,600 2,328 3,800 11079 1;571 2;564 546 795 1;297 

65-69 1,844 2,643 4,477 1,285 1,842 3,120 922 1,321 2,238 517 741 1,255 

70-74 1.256 1.811 3.182 950 1.369 2.406 720 1.038 1.824 460 663 1.164 

75-79 

Women 

35-39 

40-44 

45-49 

50-54 

55-59 

60-64 

65-69 

70-74 

75-79 

.~ .~ ~ ~. 

805 1.188 2,156 657 970 1:760 526 776 1,408 378 558 1,012 

$ 2,150 $ 4,301 $ 8,849 $ 845 $ 1,691 $ 3,478 $ 365 $ 730 $ 1,503 $ 88 $ 176 $ 362 

2,095 4,037 8,196 1,000 1,927 3,912 508 979 1,987 159 306 621 

2,071 4,047 8,290 895 1,748 3,581 423 826 1,692 120 234 479 

1,917 3,598 7.383 1.000 1,878 3,853 546 1,026 2,105 193 363 745 

1,686 3,064 6,529 957 1,739 3,706 574 1,043 2,224 228 414 882 

1,418 2,550 5.748 871 1,566 3,531 567 1,020 2,299 263 474 1,067 

1,111 2,013 4,707 744 1,349 3,154 515 934 2,184 275 498 1,165 

828 1,514 3,625 603 1,104 2,642 449 821 1,966 266 488 1,167 

553 1.009 2,454 435 795 1,934 352 642 1,562 234 428 1,041 

Note: All costs are expressed in 1986 dollars. See text for definitions of light, moderate, and heavy 

smokers, 

110 
Table 4. Increases in Years of Life Expectancy Due to Smoking for Light (L), 

Moderate (M), and Heavy (H) Smokers, by Discount Rate, Sex and Age. 

Increases in Years of Life Expectancy 

Discounted Discounted Discounted Discounted 

at 0 Percent at 2.5 Percent at 5 Percent at 10 Percent 

Age/Sex 

Group L M H L M H L M H L M H 

35-39 3.64 

40-44 3.27 

4 5-49 2.81 

50-54 2.28 

55-59 1.74 

60-64 1.22 

65-69 .78 

7 0-74 .41 

75-79 .17 

Women 

35-39 1.65 

4 5-49 1.29 

50-54 1.05 

55-59 .75 

60-64 .46 

6 5-69 .I9 

49 - 44 1.50 

70-74 -.03 

75-79 - .14 

5.08 6.21 1.56 

4.60 5.62 1.53 

4.00 4.90 1.44 

3.32 4.07 1.28 

2.60 3.20 1.05 

1.90 2.36 .80 

1.32 1.65 .56 

.82 1.06 .33 

.49 .67 .16 

3.18 4.41 .69 

2.94 4.10 .70 

2.64 3.71 .66 

2.28 3.25 .59 

1.85 2.69 .48 

1.40 2.10 .33 

.97 1.52 .17 

.59 1.01 .02 

.33 .63 - .08 

2.15 

2.14 

2.03 

1.83 

1.55 

1.23 

.92 

.62 

.40 

1.25 

1.27 

1.26 

1.19 

1.05 

.86 

.65 

.43 

.26 

2.64 .72 

2.62 .78 

2.49 .79 

2.25 .75 

1.92 .67 

1.53 .55 

1.15 .41 

.80 .26 

.54 .14 

1.71 .31 

1.76 .35 

1.74 .36 

1.67 .35 

1.51 .31 

1.27 .24 

1.00 .15 

.71 .04 

.48 - ,04 

.99 

1.07 

1.10 

1.07 

.97 

.83 

.66 

.47 

.32 

.54 

.60 

.64 

.65 

.63 

.56 

.45 

.32 

.21 

1.22 

1.32 

1.35 

1.32 

1.21 

1.03 

.83 

.61 

.44 

.73 

.82 

.88 

.91 

.89 

.81 

.69 

.52 

.38 

.20 

.24 

.28 

.30 

.30 

.28 

.24 

.17 

. 11 

.08 

.10 

.I2 

.14 

.14 

.13 

.10 

.os 

0.00 

.27 .34 

.33 .41 

.39 .48 

.42 .53 

.44 .54 

.42 .52 

.37 .47 

.30 .39 

.23 .34 

.13 .18 

.17 .23 

.20 .27 

.23 .32 

.25 .36 

.26 .37 

.24 .35 

.19 .30 

.14 .24 

Note: See text for definitions of light, moderate, and heavy smokers. 

&Benefits Attributable to I Reductions in the Amount 

Smoked 

- 

Reductions in Costs for the Medical 

Treatment of Smoking-Related Diseases 

The benefits of a reduction in the amount smoked from 

moderate to light and from heavy to moderate measured ir 

terms of changes in expected lifetime medical care costs 

are presented in Table 5 We calculated these benefits by 

subtracting the reductions in expected lifetime costs of 

treating smoking related diseases experienced by light 

smokers who quit from the reductions in expected lifetime 

costs of treatment for moderate smokers who quit 

Increases in Life Expectancy 

Increases in years of life expectancy due to reductions in the 

amount smoked from moderate to light and from heavy to 

moderate are presented in Table 6 We calculated these esti 

mates by subtracting the increase in years of life expectancy 

due to smoking cessation for light (moderate) smokers from 

the increase in life expectancy due to smoking cessation for 

moderate (heavy) smokers 

I 

Table 5. Reductions in Expected Lifetime Medical Care Costs for the Treatment 

of Smoking-Related Diseases Due to Reductions in the Amount Smoked from 

Moderate to Light Smoking (M-L), and from Heavy to Moderate Smoking (H-M), 

by Discount Rate, Sex and Age 

Reductions in Expected Lifetime Medical Care Costs for the Treatment of Smoking-Related Diseases ~~ ~~ ~ 

Discounted Discounted Discounted Discounted 

at 0 Percent at 2.5 Percent at 5 Percent at 10 Percent 

@/Sex 

Group M - L H - M M - L H - M M - L H - M M - L H - M 

Men 

3 5- 39 $3,797 $4,797 $1,607 $2,030 $ 740 $ 935 $ 202 $ 255 

40-44 3,369 4,249 1,567 1,977 783 989 242 305 

4 5 - 49 2,816 3,687 1,429 1,871 774 1,014 275 359 

50-54 2 I 196 3,135 1,210 1,728 708 1,010 278 397 

55-59 1,592 2,648 949 1,578 594 988 269 448 

60-64 1.126 2.272 728 1.472 492 993 249 502 

6 5- 69 799 1;834 557 1:278 399 917 224 514 

70-74 555 1,371 419 1,037 318 786 203 501 

1 5 - 79 383 968 313 790 250 632 180 454 

193-851 0 - 87 - 5 OL 3 

113 
Table 5. (continued) 

Women 

3 5 - 39 $2,151 $4,548 $ 846 $1,787 $ 365 $ 773 $ 88 $ 186 

40-44 1,976 4,243 853 1,833 403 866 114 245 

45-49 1,942 4,159 927 1.985 471 1.008 147 315 

I 50-54 1.681 3.685 878 1.975 480 11079 170 .. ?R7 ___ 5 5 - 59 1,378 3;465 782 1:967 469 i 1181 186 468 I 60-64 1,132 3,198 695 1.965 453 1.279 211 593 I 6 5-69 902 2.694 605 1:805 419 1.250 223 ~~~ hh7 

70-74 686 21111 501 11538 372 1,145 222 679 I 7 5-79 456 1,445 360 1.139 290 920 194 613 

Note: All costs are expressed in 1986 dollars. See text for definitions of light, moderate, and heavy 

smokers. 

Table 6. Increases in Years of Llfe Expectancy Due to Reductions in the Amount 

Smoked from Moderate to Light Smoking (M-L), and from Heavy to Moderate 

Smoking (H-M), by Discount Rate, Sex and Age 

Increases in Years of Life Expectancy 

Discounted Discounted Discounted Discounted 

at 0 Percent at 2.5 Percent at 5 Percent at 10 Percent 

Aga/Sex 

Group M - L H - M M - L H - M M - L H-M M-L H - M 

Men 

3 5-39 1.44 

40-44 1.33 

45-49 1.19 

50-54 1.04 

60-64 .68 

6 5-69 .54 

5 5-59 . 86 

~~ ~ .~ 

70-74 .41 

75-79 .32 

Women 

3 5-39 1.53 

40-44 1.44 

45-49 1.35 

50-54 1.23 

5 5-59 1.10 

60-64 .94 

6 5-69 .78 

70-74 .62 

75-79 .47 

.13 

.02 

.90 

.75 

.60 

.46 

.33 

.24 

.18 

.23 

.16 

.07 

.97 

.70 

.55 

.42 

.30 

. a4 

.59 

.61 

.59 

.55 

.50 

.43 

.36 

.29 

.24 

.56 

.57 

.60 

.60 

.57 

.53 

.48 

.41 

.34 

.49 

.48 

.46 

.42 

.37 

.30 

.23 

.18 

.14 

.46 

.49 

.48 

.48 

.46 

.41 

.35 

.28 

.22 

.27 

.29 

.31 

.32 

.30 

.28 

.25 

.21 

.18 

.23 

.25 

.30 

.32 

.32 

.30 

.28 

.25 

.2a 

.23 

.25 

.25 

.25 

.24 

.20 

.17 

.14 

.12 

.19 

.22 

.24 

.26 

.26 

.25 

.24 

.20 

.17 

.07 

.09 

.ll 

.12 

.14 

.14 

.13 

.13 

.12 

.05 

.07 

.08 

.09 

.ll 

.13 

.14 

.14 

.14 

.07 

.08 

.09 

.ll 

.10 

.10 

.10 

.09 

.07 

.05 

.06 

.07 

.09 

.ll 

.ll 

.ll 

.ll 

.10 

Note: Sea text for definitions of liEht, moderate. and heaw smokers 

114 
I 5. References 

Oster. G.. Colditz. G.A.. Kelly, N.L.. The economic 

costs of smoking and benefits of quithng for individual 

smokers. Prev. Med., 1984; 13:377~389, 

Oster, G.. Huse. D.M., Delea. T.E., Colditr, G.A.. cost^ 

effectiveness of nicotine gum as an adjunct to physician's advice against cigarette smoking. JAMA 1986; 

256:1315-1318. 

Hammond. E.C.: Srnokino in relation to the death rates ~ 

of one milion men and women. In: Haensrel. W. (ed). 

Epidemiological Approaches to the Study of Cancer 

and Other Chronic Diseases. National Cancer Institute 

Monograph 19. Bethesda, MD: U.S. Department of 

Health, Education and Welfare, Public Health Service. 

National Cancer Institute. January 1966. 

Doll. R., Peto, R: Mortality in relation to smoking: 

twenty years of observation on male British doctors Br 

Med. J., 1976; 2.1525-1536. 

115 

Economic 

Sector Data 

for Modeling 

the Impact 

of Less 

Ignition-Prone 

Cigarettes 

The Costs and 

Benefits 

to Smokers of 

Reduced 

Flammability 

Cigarettes 

GARY T. FORD 

Kogod College of 

American University 

Business Administration 

JOHN PRATHER BROWN 

Chase, Brown and Blaxall. Inc. 

JOHN E. CALFEE 

College of Business and 

University of Maryland 

Management 

117 

193-851 0 - 87 - 6 - QL 3 

The Costs and Benefits to Smokers 

of Reduced Flammability Cigarettes, 

Gary T Ford, John Prather Brown. and 

John E. Calfee .......... ..... ,117 

1. Introduction and Summary. ... . . 121 

2. Cigarettes and Fires .... ... ,123 

4. Ways to Implement New Cigarettes .... 131 

5. Expected Market Changes ..... ,135 

(Consumer Surplus) . . ........ 139 

Socioeconomic Characteristics 

of Smokers 141 

8. References ...... .. ... ,147 

3. Reduced Flammability Cigarettes ,127 

6. Changes in Net Benefits to Smokers 

7. Appendix: The Demographic and 

- 

List of Tables 

Table 1. Relative Chances of Smokers 

Dying in Smoking Caused Fires 

Changes in Consumer Surplus 

126 

Table 2. 

from Price Changes 140 

Table 3. Distribution of U S Population by 

Age Race and Sex July 1 1985 

Ratio of Smokers and Former 

Smokers to Total 141 

Table 4. Distribution of U S Popuiation by 

Age Race and Sex July 1 1985 

Ratio of Smokers and Former Smokers 142 

Table 5. Estimated Number of New 

Smokers in 1986 146 

I 1 .Introduction and Summary 

A. Purposes and Methods 

This report is part of a large effort to assess the costs and 

benefits of introducing new cigarettes that are less likely to 

cause accidental fires. The Cigarette Safety Act of 1984' 

created an Interagency Committee on Cigarette and Little 

Cigar Fire Safety, which is charged with addressing the 

feasibility and consequences of developing cigarettes and 

little cigars with a minimum propensity to ignite upholstered 

furniture and mattresses. That group created a Technical 

Study Group, which in turn contracted with the Applied 

Economics Group in the Mathematical Analysis Division of 

the National Bureau of Standards (NBS) for a cost~benefrt 

study on cigarettes with reduced "ignition propensity.' The 

NBS group divided the task into distinct but overlapping 

parts: reduced fire losses, changed health care and produc~ 

tivity costs, net benefits to smokers (changed consumer6 

surplus), changed produce6 profits, changed employment 

and wages, and changed farm income. The present report 

addresses changes in consumer* surplus, that is. net 

benefits (exclusive of health and fire effects) to smokers of 

reduced flammability cigarettes. 

A note on terminology is necessary. We shall use the term 

"reduced flammability," rather than "reduced ignition propensity:' when referring to cigarettes that are less likely to cause 

fires. We reserve the terms "self~extinguishing' and "reduced 

ignition propensity" to refer to two different types of reduced 

flammability cigarettes. 

This report is on changed consumer surplus, that is, the 

net gain or loss incurred by smokers themselves as a result 

of smoking reduced flammability cigarettes. exclusive of 

health and fire effects, which are dealt with in other reports. 

Net benefits for smokers depend on both the nature of 

reduced flammability cigarettes and the manner in which 

consumers and the rest of the market (especially manufac~ 

turers) react to the changed cigarettes and to each other. 

Thus our analysis focusses on consumer behavior and the 

adjustments of buyers and sellers in competitive markets. 

Some elements in our analysis necessarily impinge upon 

other parts of this project For example, smokers may adjust 

their smoking behavior to compensate for changes in taste. 

burning characteristics. and perhaps tar and nicotine 

content. We shall also look at socio-economic differences in 

smoking behavior and propensity to start fires. the regulatory 

choice between performance standards versus input st an^ 

dards. mandated changes versus information campaigns. 

and so on. All these could affect estimates of both fire 

prevention and health consequences of changed cigarettes 

We outline here some principles that shaped our analysis. 

Where data are available, we have tried to use it Examples 

are the section on the confluences of smoking and fires, and 

the value that smokers attach to cigarette taste. Usually, 

available data do not address the speclfic topics we deal 

with. The main problem is lack of informatiori on how 

reduced flammability cigarettes will differ from existing 

brands. how the differences would affect other factors such 

as taste and tar and nicotine yield, and how smokers value 

these changes. The best we have been able to achieve is to 

make reasonable conjectures of possible changes, or to 

produce illustrative calculations that seem to include the 

range of likely changes. 

We have paid particular attention to demographic differ^ 

ences among smokers and to the role of competitive forces 

in the cigarette market We did this because we found the 

demographic differences to be substantial, and because 

past events in the cigarette market have demonstrated that 

market forces are potent determinants of pattern of smoking 

behaviors that emerge from regulation and other changes 

Because of this history and the frequently disappointing 

experience with interventions in other markets, we also gave 

some attention to various ways of implementing reduced 

flammability cigarettes, noting the likely differences requiring 

changes as opposed to letting the market implement new 

technologies 

'Pubic Law 98 567 section 4iWJ (October 1984J 
Findings and Conclusions 

1. There are substantial demographic differences in the 

confluences of smoking and fires. For example, the heaviest smokers are in the 25-44 age group, whereas the 

greatest relative concentration of fire victims is in the over 

64 age group. 

2. Because of lack of specific data on reduced flammability 

cigarettes, and on smoker reactions to likely changes, our 

conclusions on net costs and benefits are almost entirely 

qualitative in nature, supplemented by illustrative calculations. Ne! changes in costs and benefits to smokers from 

price changes alone will probably be "moderate." 

Changes in net benefits from adverse changes in 

smoking characteristics - poorer taste and the necessity 

to relight cigarettes frequently ~ are impossible to estimate with present data, but the changes could be 

substantial. 

3. Different methods for constructing reduced flammability 

cigarettes may have markedly different effects on 

changes in net benefits to smokers (due to different 

changes in taste and other smoking characteristics). 

4. Tar and nicotine yield could change substantially as a 

result of reductions in flammability, with possibly substantial adverse health consequences, Much of the change 

could escape detection by Federal Trade Commission 

(FTC) ratings, since the changes would come from 

smoker 'tompensation" that is no! taken into account by 

the FTC machines. Moreover, different types reduced 

flammability cigarettes may have markedly different effects 

on tar and nicotine yield. 

5. Voluntary implementation of reduced flammability 

cigarettes merit serious consideration, in view of the 

significant possibility of adverse effects of requiring 

reduced flammability cigarettes, and the uncertainties 

associated with an intervention. 

6. If reduced flammability cigarettes are mandated, 

mandates expressed as performance standards rather 

than design standards offer considerable advantages in 

terms of reducing the likelihood of adverse consequences 

of intervention. 

7 If the government requires that cigarettes be constructed 

a certain way to reduce flammability. or that cigarettes 

achieve a certain level of flammability, the new market is 

unlikely to be simply the old market with fewer fires 

started by cigarettes. Smokers will change brands and 

smoking techniques, and manufacturers will adjust tar 

and nicotine content and other aspects of cigarette 

construction. These adjustments could affect the health 

consequences of smoking and the predicted reductions 

in fires. 

. 
I 2mCigarettes and Fires 

- 

The demographics of cigarette use and of fires are of 

interest for three reasons. First, if reduced flammability 

cigarettes are introduced by means of market forces rather 

than through regulation. sales of the new cigarettes will 

depend partly on the degree to which specific groups would 

see or expect benefits from them. In particular, we note that 

if the benefits are concentrated in a few groups, those 

persons might find the advantages outweigh the disadvan~ 

tages. and thus sales might be significant in exactly the 

places where it would do the most good. On the other 

hand, if benefits trom reduced flammability cigarettes are 

evenly spread among the population ol smokers, and if 

there is a significant cost in terms of smoking pleasure, sales 

might be insignificant because no one would find the modi^ 

fled cigarettes worth their cost. 

Second, regardless of whether reduced flammability 

cigarettes are required by regulation. consumer trade-offs 

between safety and other characteristics such as smoking 

quality and tar and nicotine content will vary according to 

the perceived benefits of preventing fires, and this will affect 

changes in net benefits to smokers and overall market 

adjustments to new cigarettes. 

A final reason for looking at the demographics on 

smoking and fires is that these results will be important lor 

other parts of the reduced flammability cigarette project. 

such as predicted effects on fires and health. 

Data and Methods 

We work with two distinct sets of data one on smoking 

behavior (who smokes how much etc) and one on the 

victims of fires started by cigarettes Data on smoking 

behavior are quite comprehensive and easily obtainable 

although they are not broken down exactly as we would 

wish The primary source is the National Center for Health 

Statistics whose data were supplemented by data from 

other souces on teenage smoking 

2Dafa on who sfarts hies wrth ogaretres are nearly no" exislent 

There is almost no data available on the characteristics 01 

those who start fires with cigarettes The most comprehen 

sive source of data about fire deaths injuries and losses is 

contained in the five editions of Fire in the United States 

published by the United States Fire Administration These 

data however contain no demographic information on the 

victims of fires caused by cigarettes Additional sources of 

information about those who are involved in fires have come 

from studies done of specific locales or states These 

studies also provide little in the way of useful demographic 

data about those killed or injured in smoking caused fires 

The most thorough analysis of the dmographic charac 

teristics ol those who die in fires started by cigarettes is 

contained in the United States Fire Administration reDort 

~- ... ~. ~ 

lFiie in the Unifed Sfales has been puh1,shed lor the years 1977 1978, 

7980, 1981 and 1983 lhr data horn the Nafronal i ire Incident 

Repoiling Syslem. (NFIRS). and horn a survey complefed by Ihe 

Nalional Fire Piofrchon Association In ilie fafesf edifion 01 Fire til fhe 

United States. the NFIRS dafa were drawn lrom lire deparfments ill 34 

states plus the D~tiict 01 Columbia From fer? to 59 percenf 01 fhe hie 

deparfments in a state parfrcipated in NFIRS The nat!onal eslirnalcs lor 

crvilian deaths reported m Fire !n fhe Unifed States wcic based 011 a 

National Fire Protection Associatm sufvey of %rc departments (Fire in 

fhe United States, 1982. page 9) We have no rnlormation abouf fhe 

details of fhe sufvey it is our anpression fhal fhe dafa published in Fre 

in fhe Unifed States are generally considered reliable As noled below 

howrvei the estimates 01 hie deaths confamed m lhat publication are 

between hlty and one hundred percent higher than lhose which come 

lrom the Hall and Hefzei (1983) study 

&See lor example. fhe studies of Syracuse (Kaiter and Donne, 1978j and 

Toledo (Gunther 1981) and fhe Maryland (&,I and Hafpin 1979, Biiky el 

ai 1979) study. 

5Foi example, the Maryland study provided mlorniabon about fhe agc. 

race and sex disfribulion of 463 lire Iatalifies iii Maryland horn 1972~ 

1977 These dafa were nor broken down separately lor smoking caused 

and other caused hies (Beif and Halpin, 1979J Nat~onally, ~t IS csli~ 

iiiafcd fhat siighliy less than one-quarter 01 all Ire deafhs are the results 

of cigarette caused Ires, although Befl and Haipin estimated the 

percentage at 444 peicenr lor thea data (at p 11) The Toledo study 

concloded that there was an inverse c~iielali~n between smoking 

caused fire and mcome. buf no delarfed findrngs were reporfed /or 

other demogiaphrc variables (Gunthe,, 1981, p 56). 

6C!garettes were known lo have started 788 pcrcenf of fhe hres sfailed 

by smoking maleriais in the years 1977.7978 Pipes. cigars arid ofher 

items account for 3 6 percent and the cause 01 fhe remaming 1 76 

percent was unknown. (Fire n the United Slates, Second Edition, 1982, 

p. 46) For the purposes 01 lhis report. smoking caused hres can he 

interpieled as cigarelfe caused Ires 

123 
"Civilian Residential Fire Fatality Rates: SIX High-rate States 

Versus Six Low~rate States:' (Hail and Helzer, 1983) which 

used data from the 1978-1979 time period to calculate the 

death rate per million for population groups jointly categorized by age, race and The most striking finding from 

the Hall and Helzer was that black males 45 years and older 

in high fire rates states had approximately twenty times the 

smoking caused fire death rates of white children under five 

in both high and low fire rate states8 (Hall and Helzer, p. 16). 

For our purposes, the Hall and Helzer data provided a 

starting point for comparing the characteristics of firestarters 

to smokers.9 

Our methodology can be described as follows. Hall and 

Helzer provided estimates of smoking caused deaths per 

million by age, sex and race categories for high and low firerate states for 1978-1979.'0 The actual deaths in each category were estimated by multiplying the total population in 

these categories in the six high and six low fire-rate states 

by the deaths per million incidents. The population estimates 

by age, race and sex were obtained from 1980 census 

data." The result of this calculation was an estimate of the 

'The data in lhis stuoy should be reasonably rehable Since records were 

gathered lor every non-motor vehicie lire latai!ty for a one year period in 

the tweive states. Although the reporting periods differed (July to June 

or January to December (due to reporting differences in some of the 

states. there is no reason to expect that this would bias the results. The 

high Ire rate states were Alabama. Arkansas, Georgia, M!ssissppi. 

Oklahoma and Tennessee The low lire rate states were Calrlornra. 

Conneclmt, Delaware, Florrda, Utah, and Wisconsin Subsequent analysis shows that m 1981, lour of the SIX high rate states ranked above 

the median in fire incidents and that lour of the six iow fire rate states 

ranked below the median on the same measure (FUS. 1987. A42) 

Apparently the fire ranks are not entirely stable from year to year 

Vlail and Helzer warn that age, sex and race crosstabulations should be 

treated with caution since the incidence of death calculations were 

based on small numbers 01 cases. This note 01 caution is worth 

bearing in mmd, Since the caiculations we perform rely on this data. In 

our defense, we aggregate the data lrom the high and low fire rate 

slates by calculating weighted averages based on 1980 census population count of each state. Thus. the small sample Size problem occurring 

In Some cells is diminished somewhat 

%me Hall and Helzer examrned [hose who dred in cigarette caused 

Ires as opposed to those who started and dred in cigarette caused 

fires, it can be argued that the data are not completely reliable 

regarding the characteristics of firestarters. Haii and Helzer state 

however. "smoking fire death rates tend to grow steadily with age. This 

suggests that most of the people dyrng m smoking-related Ires are the 

smokers whose cigarattes ignited the tires. and so the young-child 

peak is eliminated by the fact that the young children do not smoke" 

(p 14.) This conclusion may have to be tempered somewhat because. 

in the study of deaths from fires completed in Maryland, Bed and 

Halpin (1979) presented data that showed 135 smoking caused tires 

resulted In 184 deaths, an average of 1.36 deaths per fire. This data 

indicates that there is a subsfanIra1 chance that the smoker is not the 

oniy person who will die in a fire. What really may be going on in 

mult!ple death smokmg caused fires. 6 that those who dre generally 

rnclude the smoker and ho or her family We were not able to locate 

data on the percentage 01 smoking caused Ires that are single death 

bres. 

Because these are the only data on the age, race and sex 01 those 

killed in smoking caused fires, they were treated as il all of those who 

died were smokers. While being able to remove non-smoking vrctims of 

smoking caused fires would change the size oi our estimates. 11 should 

have no effect on the estimates of the dillerences between groups of 

smokers regarding their chances 01 dying in smoking caused ires 

(This assumes, 01 course, that the popdabon of non-smoking victims of 

smoking caused hres is simiiai to that of the smoker victims j 

number of people who died by age, sex and race from 

smoking caused fires in the six high and six low fire-rate 

states. 

The next step was to combine the estimates for the two 

groups of states into an overall weighted average. This was 

done by weighting the number of estimated deaths in each 

age, race and sex category for the high-fire rate states and 

the low fire-rate states by the percentage of the population in 

each category of states. For example, the percentage of 

black males between 25 and 44 in high fire rate states, was 

estimated by dividing the number of black males in that age 

category by the total number of black males in that age 

category in all twelve states. Comparable calculations were 

completed for the low fire~rate states. Comparable calcula~ 

tions were completed for the low fire-rate states. The 

resulting estimates were summed within the age, race, sex 

categories across high and low fire-rate states to produce a 

weighted average of deaths by age, sex. and race across 

the twelve states. The weighted approach was necessary 

because the high-fire rate states had twice the relative death 

rates but only half the population of the low fire-rate states. 

Thus, a simple average would have been inappropriate." 

much more stratightforward since the National Center for 

Health Statistics, (NCHS), supplies such data for smokers 

aged twenty and above and by agem race and sex. The 

only complicating factor was the fact that the incidence of 

teeenage smoking is not estimated in the NCHS data and 

- 

The method for estimating the distribution of smokers was 

Vhe Hall and Helzer data consisted of five age group categories. (<5, 

5~24, 2544. 45-64, and >64j: two race categores (black and all 

other). two sex categories. Thus, 20 (le.. 5x2~2) discrete categories 

existed lor the high and low hie-rate states. 

"This creates an inaccuracy of unknown, but presumably small, size. 

Hall and Halrer estimated the population m the twelve states at 61.2 

miliron, spirt 66.3 percent in low (ire rate states and 33.4 percent in 

high-/Ne-rate states (at p. 3) Using the 1980 census estimates. the 

population of the tweive states is estimated at 64.8 mriiion, split 66.3 

percent m hrgh~rate states and 334 percent !n low lire~rate states. 

"it is interesting to note that when the resulting werghted inodeme rate 

is generalaed to the national population it is estmated that sBghtIy 

less than I.WO peopie will dre tn cigarette caused Ires Since the 

most common estimates are that between 1.500 and 2,000 people die 

each year !n smoking related hies it !s apparent that the sample 01 

twelve states is not representatwe 01 all 50 states or that the data 

reporting system !s not valfd We beljeve the Hail and Helrei data set 

was compried very carefully 
had to be estimated form other data source^.'^ After 

combining data on teenage smoking with the NCHS data, 

we developed the joint probability distribution of smokers by 

age, race and sex. 

Before the distribution of firestarters could be compared to 

that of smokers, one final manipulation of the data was 

done. This involved an adjustment of the age breakdown 

data for the less than five year~olds and the five to 24 year^ 

olds age groups. Since the smokers data used age groups 

starting with seventeen year~olds, we attempted to estimate 

fire deaths in those less than seventeen and those from 

seventeen to twenty~four. NFIRS data on cigarette fire caused 

deaths from 1983 and 1984 was available by age and sex 

for single year intervals. Based on two years data we were 

able to estimate the split in deaths between those sixteen 

years and younger and those seventeen to twenty-four and 

adjust the Hall and Helzer data.14 This adjustment provided 

similar data for the distribution of smokers and the distribution of firestarters. 

Main Results: Smokers and Firestarters 

Table 1 shows the distribution of deaths from fires caused by 

smoking the distribution of smokers by age race and sex 

and a ratio that compares these two distributions for each 

demographic group That table suggests there are strong 

demographic differences in fire starting with cigarettes as 

well as in smoking behavior The largest group of smokers is 

in the 25 44 year old age category White males and 

"A! approxirnalely age sevenfccn, apprecrable percentages of 

teenagers begin smoking The data for white~males, black-males. 

whiie-females and hlack~iemalw aord 77~19 is ou~fe sketch" or old 

percen: of males and 30.9 percen: oi females aged 17-24 were regular 

smokers (Advancedata, No. 52 p. 4 j Dafa tram the Nafronal Institute 

01 Educarron lor 1979, estrmaied :ha: 193 percent of males and 26.2 

percent a1 females aged 1718 smoked NCHS esfimaied that among 

high school students n 1984. 160 percent oi males and 205 percent 

of lemales "smoked cigarettes daly in the last thirty days." (NCHS, 

minfeo, Bbie 3) The data tnd,cated that blacks smoking rate are less 

thaii whrtes For example, Remngton e: al. (1985) reported that the 

smoking par:rc,pa:ion rafe lor whife males aged 18~29 was 34.0 

percen:, versus 23 7 percent for black males m :hat age group. For 

whiie iemales and black ternales aged 18-29, the corresponding 

percenfages were 349 percent and 21.1 percent. respectively It seems 

clear that while appreciable peiceniages of 17-19 year-olds smoke, the 

percenfages are somewhat smaller ihan for the 20 24 year-olds If also 

seems clear that a lower percentage of young blacks smoke than do 

yoiing whites For purposes oi this analysis the parrrcrpation rafes 01 

17~19 year old smokers were eslimated af ihree percent less ihan 

comparable percentages for 20-24 yeaiolds. While admittedly 

arbitrary :his approach resulfs in esiimates that are consisien! with :he 

smoking pafterns lor even younger smokers and wrfh the paiterns 

observed for while-males. black~males. whifedemales and blackfemales Thus, although :he estimaies are arbitrarv :hey are probably 

reasonable ?be estimated percentages oi teenage smokers by age 

race and sex are mulfiplred by 1985 census data 10 obiam an estimate 

Of the mimbri of smokers in each category This was added to the 

esilmatc 01 the number oi smokers 20~24 to calculate the number of 

smokers between fhe ages of 17 and 24 by race and sex Using ihis 

procedure the total number of smokers !n the Unrfrd States in 1986 IS 

estimated at 51.8 million 

"Since data were not available by race, we assumed tha: the incidence 

rafes WWE equrvalen! lor blacks and whites 

females account for over 87 percent of all smokers Black 

only represent one out of every eight smokers, (12.5 

percent), which is quite consistent with their representation in 

the population. The marginal percentages show that white 

males account for slightly over one~half (@e., 53,7 percent) of 

all deaths from smoking fires and that white females rep re^ 

sent almost 30 percent of the victims. Less than eight 

percent of the victims are sixteen years or younger (and 

although not shown here, only three percent are less than 

five years old), The data indicate quite clearly that most 

victims of cigarette caused fires are adults, and in fact, 63 

percent are 45 years or older. 

The lowest section of Table 1 shows, for each category. 

how the ratio of deaths to smokers compares to the ratio for 

the average category. An entry greater than one indicates a 

category of smokers with a greater than average change of 

dying in a smoking caused fire, while a ratio of less than 

one indicates the opposite. We see disproportionately high 

entries for smokers 45 years and older, this age group 

accounts for 35 percent of the smokers and 63 percent of 

the deaths from smoking caused fires. Black males, black 

females and white males over 64 also seem particularly 

likely to benefit from a reduction in ignition propensity, since 

these three groups represent approximately four percent of 

the smokers but account for nineteen percent of the victims 

of smoking caused fire~.'~ Among those older smokers 

black-males have a particularly high ratio (6.43) while white^ 

females exhibit the lowest death to smoker ratio among that 

age group.'6 

In contrast are the smokers under age 45. As a group. these 

smokers exhibit a ratio of less than one, 1.e.. less than the 

average for all smokers. Especially notable are those 

between 25 and 44. They are the heaviest smokers (e.9.. 

approximately 30 percent of this group smoke 25 or more 

cigarettes per day)," but have the lowest comparative ratio 

of deaths from smoking caused fires to smoking prevalence 

(.45). The ratios are also particularly low for women smokers 

under 45 as non of the ratios for white and black females in 

'Wider smokeis conwme fewer ctuarefles - mi dav :ha" do miinner ~~~~ ~ 

~~~~ ,~~ ~, I~~ 7~ 

smokers, re 380 percen: smoke iewei than 15 agareites per day arid 

194 percent smoke 25 or more a da)! Oil average 308 percent ol 

smokers consume less than 15 and 272 percent smoke 25 or morc 

cigarettes per day (NCHS. Healih, 86 pfeliminary data. July 17 19861 

ihus. older smokers particrpate in fewer smoking Occasioris :ha" other 

smokers and still are involved in more fires 

'6Although black male smokers 65 and over have the hrghes: deaih to 

smoking ratio they account lor relatively few deaths per year For 

example, ri :here are 2,000 smoking hie caused deaths in the Unrted 

States, ~pplD.VIm.9!ely smty elderly black men would be eslimated to 

drc for :ha: cause, (I e, 2.000 x ,02943 = 591 This is dm :a :he rela. 

tively small rncrdence of elderly black smokers By cimfrasi, usmy that 

same death esiimale. 275 whrtc males between 45 and 6.r would be 

estimated to die in smoking caused tries (2,000 x 187419 =5 375) 

Their deaih to smoker rabo IS much less. (160). bu: them are so many 

more while males in the populaiion that :he absolute number of 

deaths is much greater 

"NCHS 19866 

125 
Table 1. Relative Chances of Smokers 

Dying In Smoking Caused Fires" 

~~ ~ ~~ 

Percent Distribution of Deaths from 

Smoking Caused Fires 

White Black White Black 

Age Male Male Female Female Totals 

<16 2.3 010 1.2 3.0 0.9 7.5 

17~24 5.6 0.4 2.0 0.3 8.3 

45~64 18.7 3.6 13.4 0.9 36.6 

~ 25-44 12.4 3.4 3.9 1.3 21 .o 

Percent Distribution of Smokers 

White Black White Black 

Male Male Female Female Totals Age __________ 

17~24 7.6010 1.0 8.2 1.1 18.0 

25-44 22.0 3.1 18.9 3.2 47.2 

45-64 11.7 1.7 11.6 1.6 26.6 

> 64 3.6 0.5 3.7 0.4 8.2 

Totals 45.0 6.3 42.4 6.3 100.0 

Ratio of Deaths to Smokers" 

White Black White Black 

Male Male Female Female Totals 

17-24 0.74 0.40 0.24 0.27 0.46 

25-44 0.56 1.11 0.21 0.42 0.45 

> 64 4.00 6.45 1.95 4.82 3.24 

Total ratio 1.19 1.85 0.70 0.82 1 .oo 

Age _________~ 

45-64 1.60 2.13 1.15 0.58 1.38 

*Cell entries may not sum to column and row totals due to 

rounding. 

**Each entry in this portion of the table is the ratio of the 

corresponding entries in the two other portions of the 

table: e.g., the entry of 1.15 for white females of ages 45- 

64 is the ratio of 13.4 to 11.6, which are the other two 

entries for white females of ages 4564. 

these age groups is greater than 1. Thus younger smokers 

will apparently benefit the least (at present) from reduced 

flammability cigarettes.'B 

Unfortunately, little is known about those who are involved 

in both smoking and fires, beyond age, sex, and race. Very 

little hard data exists about other demographic or sociecornonic characteristics of those who actually start fires wlth 

cigarettes. Since smoking participation rates vary inversely 

with education and incorne,'g it can be hypothesized that a 

relatively greater percentage of those who smoke, and thus, 

of those who start fires are in lower socioeconomic groups. 

In the Toledo study, Gunther found an inverse relationship 

between median household income and smoking fires.20 

Karter and Donner (1978) found that in Newark, Phoenix and 

Toledo the percentage of persons below the poverty level in 

a census tract was directly related to the number of fires 

started. These data were not restricted to smoking caused 

fires, however." Therefore. although there is some evidence 

that firestarters are relatively less educated and less wealthy, 

the extant data are by no means conclusive. 

'OThe fact that the 25~44 year old group represents the largest category 

01 smokers LS due primarily to the 'baby boom" cohort rather lhan lo 

increased smoking participalion rates. Although a larger percenlage 01 

members of lhis age group smoke (35 percent of lhose belween 25 

and 44 are smokers, versus slightly over 30 percent of all lhose 20 

years and older), lhe fact thal 44 percent of the population over twenty 

years old is in this age group LS a much more rmportant reason why 

47 percent of all smokers are between 25 and 44. 

This may mdicale thal in the nexl ten or twenty years the number 01 

deaths caused by smoking Ires will increase substantially as these 

baby boomers enter the prime lireslarter years. For example, given the 

same death rates per mrllm lor those 45 and over in lhe year 2.000 

as exisl at presenl. it would be expected that approximately 1.200, 

(95 7 million x 13.5/miIlion death ralej smokers aged 45 and older 

would dre in smoking caused fires as compared lo 950 at present 

(These calculaiions assume that 1.500 people annually die in smoking 

caused Ires: I1 the lrue number IS higher or lower lhe proiecled 

numbers would change accordingly 11 is also assumed tha! lhere are 

no changes in smoking participatm rales. use of smoke defectors 

and so on Population forecasts for year 2.000 by age group are 

conlained In American Demographics, January 1986, p 58) 

1986, no. 118. 

'gRemmglon et ai. 1985. Health- United States, 1982; Advancedata 

'OGunther (1981) at p. 56 

"Karter and Donner (1978) a1 pps. 62-64. 

126 
In this section we are concerned with the ways in which 

cigarettes might be changed to reduce their propensity to 

cause fires, and how these changes would affect smoking 

behavior. Unfortunately. almost nothing is known about what 

the nature of future reduced flammability cigarettes. Current 

publicly available research is apparently limited to that 

prompted by the Cigarette Safety Act of 1984. National 

Bureau of Standards test results using current brands 

suggests that at least five characteristics may significantly 

affect flammability: 

(a) Lower density tobacco 

(b) Smaller diameter 

(c) Lower paper porosity 

(d) increased burley tobacco 

(e) Use of filters. 

In addition, we understand there is some possibility that 

adding a silica gel to the tobacco in cigarettes may reduce 

ignition propensity, perhaps without requiring substantial 

changes in the above attributes. 

The extent to which reduced flammability cigarettes would 

involve changes in these factors is unknown at the present 

time. There are no specific new cigarettes. such that we can 

take into account their attributes so as to predict smoker 

behavior and market adjustments. What we can provide is 

qualitative analysis, enhanced by some purely illustrative 

quantitative examples. We shall concentrate on the expected 

kinds of changes in smoking characteristics of cigarettes, 

and their effects on smoking behavior and levels of satisfac~ 

tion. In a later section, the findings on consumer behavior 

will be used to predict overall market effects. 

Before describing specific changes, however, we wish to 

emphasize a general point about markets. Market forces 

often transform regulatory initiatives into something other 

than what was intended by regulators. There is a difference 

between the kinds of cigarettes one has in mind when 

describing the best means for constructing reduced flarnrna~ 

bility cigarettes. and the kinds of cigarettes that will eventually emerge from the varied forces that shape the cigarette 

market. Adjustments by manufacturers and, particularly, by 

consumers, could result in the market producing a mix of 

cigarettes quite different from what a regulator might have in 

mind at the beginning. For example, even if regulations 

specified exactly the minimum construction requirements to 

insure a given less of flammability, sellers can be expected 

to adjust other, unregulated aspects so as to maintain taste 

and tar and nicotine yield. New tar and nicotine ratings 

would be provided by the Federal Trade Commission (FTC). 

and smokers would switch brands in accordance to their 

own preferences for taste and tar and nicotine yield. Thus 

average cigarette flammability might be as intended, but 

other characteristics could be quite different. To the extent 

that the regulations specified design standards rather than 

the flammability standards,22 even flammability might end up 

being quite different than envisioned. 

It is useful to think in terms of two basic techniques for 

reducing the flammability of cigarettes, One is to ensure that 

unattended cigarettes do not burn long enough to start a fire 

when left on an inflammable surface. Cigarettes with this 

property are "self-extinguishing" cigarettes. The second 

method is to reduce the propensity to start a fire while the 

cigarette is burning. Such cigarettes have "reduced ignition 

propensities." The two kinds have somewhat implications for 

consumer behavior and satisfaction. 

'Self-Extinguishing" Cigarettes 

The effect of self~extinguishing cigarettes on smoker behavior 

depends primarily on four factors: price, taste, smoking 

characteristics (especially, the time allowed between puffs) 

and changes in the ingestion of health-related ingredients 

such as tar, nicotine and carbon monoxide. Price changes 

are dealt with elsewhere. Taste changes are impossible to 

assess without more information; it is possible that taste will 

not be appreciably worse in these cigarettes than in current 

varieties, perhaps because of the addition of new flavor 

enhancers. Smoking characteristics and health~related ingre~ 

dients remain to be considered. The two aspects are inter^ 

related, because the manner in which smokers change 

smoking habits to counteract the tendency to self~extinguish 

may affect how much tar, nicotine and carbon monoxide are 

ingested. 

__ 22See later section on these !wo approaches !o regiiiafing llamrnabil~!y 

127 
The essential feature of self-extinguishing cigarettes is a 

tendency to go out if left unpuffed for a modest period of 

time. Available data on puff frequency, duration and volume 

indicate that smokers puff approximately every 40 to 60 

seconds,z3 that there is a wide variation within and across 

smokers.*a that the average puff duration is between two 

and three seconds.25 and that smokers take between nine 

and twelve puffs on average per cigaretk26 Thus if new 

cigarettes self-extinguish within. say, 60 seconds, many 

smokers would either puff more frequently or relight occa~ 

sionally. 

It seems likely that smokers will increase puff frequency to 

avoid the annoyance of a cigarette that self-extinguishes, just 

as smokers now puff more frequently to compensate for 

reduced tar and nicotine. If so, more smoke would go into 

the lungs of the smoker, and less into the ambient environ~ 

ment. Thus self-extinguishing cigarettes could dramatically 

increase tar and nicotine consumption. For example, 

Kozlowski (1981) estimated that increasing puff frequency 

increases tar delivery by 58 percent or 

Changes in cigarette construction or ingredients are 

another possible cause of increased tar and nicotine ingestion. We understand that self-extinguishing cigarettes are 

likely to have reduced paper porosity and/or increased 

tobacco density.28 Less porous paper will cause less dilution 

of the smoke with air, and will therefore increase the extent 

to which smokers inhale undiluted smoke. The effect could 

be substantial. Kozlowski estimates that an ultra low tar cigarette (i.e.. 1 mg of tar) is designed (although not necessarily 

smoked) so that as much as 80 percent of the smoke in 

each puff consists of diluting airrZg In addition. more densely 

packed cigarettes exhibit a slower burn rate and this. too. 

may result in increased tar levels. 

reflected in FTC tar and nicotine ratings. But the effects of 

such changes in smoking behavior as puff frequency and 

puff duration are unlikely to be captured by the FTC rating 

system The FTCs system has not been altered in twenty 

To some extent, changes in cigarette characteristics will be 

23Creerghton and Lewis 7977 p. 292; Comer and Creighton 1972 p. 79, 

Guillerm and Radzrszewskr 1977, Rawbone, Murphy hie and Kane 

1977 p. 187 

Z'Guilierm and Radziszewskr (1977) bund that ihe time between puffs 

ranges horn 23 io 115 seconds (wsth a mean puff frequency of 40 

seconds). in a study of eighi smokers conducied over a seven day 

period. 

2SCreighton and Lewjs 1972 

z'Aliering puff frequency IS one of a number of ways in which smokers 

'xmpensaie" lor changes m cigareite conient and construciion. The 

general problem of compensation is discussed briefly below in section 

5, in the subsection on changes in far and nicotine yteld 

Section on reduced ignitron propensity cigareiies 

"We consrdei the possibrBty 01 a cigareite using silm gel later in the 

29Kozlo~skr, n.d , p. 8. 

years since its inception, despite the well-documented ex)% 

tence of compensatory smoking behavior that sometimes 

makes FTC ratings inaccurate, and it is unclear whether 

changes will arrive s00n.~o These problems with the FTC 

system could be compounded by self~extinguishing 

cigarettes could even render ultra-low tar cigarettes (those 

yielding roughly 1 to 5 mg of tar) obsolete. These cigarettes 

use extremely porous paper (and filters), and contain 

'kxpanded tobacco that is "puffed to reduce density. 

Requiring that tobacco be denser and that wrapping paper 

be less porous may therefore remove the least harmful type 

of cigarette from the market.3' Thus requiring that cigarettes 

self-extinguish could result in smokers ingesting more tar. As 

we shall note below in the discussion in section 5 of likely 

changes in tar and nicotine yield, the health effects of 

increased tar yield would probably be substantial. 

. 

Reduced Ignition Propensity Cigarettes 

Reduced ignition propensity cigarettes will probably be 

thinner, faster burning, longer, covered with thicker and more 

porous paper, and made of expanded tobacco. We understand cigarette tobacco may also be coated with a neutral 

tasting silica gel so as to create a cigarette that does not 

self-extinguish while being smoked but does if placed on a 

substrate. Such a design could may curtail the need for the 

other modifi~ations.3~ Since little is known about this product 

at this time. including its performance taste and carcinogenic 

properties, this analysis concentrates on other changes 

designed to reduce ignition propensity. 

To the extent that these cigarettes burn faster, without an 

offsetting increase in length, smokers may tend to puff more 

frequently. as has happened with low-tar cigareaes that burn 

faster,33 This would perhaps not affect actual ingestion of tar 

and nicotine, but it could affect FTC measurements, since 

the FTCs machines smoke at a constant pace.34 

3aCalfee 1987 

l'See e g.. Benowitz 1986 on the apparent eliecfiveness of "ullra low" 

tar brands 

12See Ruegg, Weber and Lippiati. "Crgarette lgnrrion Propensity: A 

benehl~cost siudy, Second progress report." Natronai Bureau of Standards, July 31, 1986 As noled above, little is known about the siljca 

gel additive From the smokers' perspective, ihe effects of the addrtive 

on tasie and on tar and nicotine conienf of ihe cigarette are obviously 

rmporiani. as are any harmful propirlies 01 ihe gel itself when 

consumed m ihe form of smoke. Since we know so /Me about ihrs 

addilive. it would be unwise for us to speculate about !Is effects on 

consumer demand, other than to state thai ri is obvious thai rf the 

sibca gel changes the iaste 01 the product dramatcally or has adverse 

health consequences. consumer Satislaction will be drminrshed. 

3'Kozlowski (1981) 

14Kozlowski (1981) 

128 
The primary factor of concern (other than increased costs 

which are discussed elsewhere). involves changes in ciga~ 

rette construction and/or ingredients. especially the 

increased use of expanded tobacco. Expanded tobacco is 

used today in a large proportion of cigarettes manufactu~ 

rered, including most low tar brands which account for well 

over fifty percent of the total cigarette market 35 Increasing 

use of expanded tobacco would tend to further decrease 

average tar and nicotine content. which is just the opposite 

effect from what IS expected from selfLextinguishing 

cigarettes We note, however, that the ppractical effect could 

be small. or could be concentrated in only a few segments 

of the market This is because some brands may already 

contain the necessary amount of expanded tobacco. and 

other brands may alter other ingredients so as to offset the 

tar-reducing tendencies of expanded tobacco. 

The major design change (besides the silica gel) that 

could adversely influence cigarette taste is increased paper 

thickness. We understand that taste is also influenced by the 

amount of paper being burned relative to the amount of 

tobacco To the extent flavorings can be used to mask the 

paper taste. which IS possible to some extent, then cigarette 

taste will be relatively ~naffected.~~ Tar yield is relatively 

~naffected.~’ Finally. costs may go down, because less 

tobacco is required. 

’5Ma~well Report 1981 Apparently most if not all low tar cigaicttc- use 

expanded tobacco wc are not aware of !he percentage of !oral SK,~ 

ietfe Sales that employ expandcd fobaccii 

36Lago 1986 

l’We have not located any literature on whether cigarelfe paper ifsell 

confributes noticeably 10 the far delivwed by cigaie!!es We suspect I! 

does nof Bii! rf i! does or rf tobacco IS used in Ihe cigaieffe wiappmy 

!hen ncreasinq paper thickness could have an cifcct on tar and mco~ 

trne Conlen! 

129 

I 4. Ways to Implement New 

Cigarettes 

The effects of reduced fire propensity cigarettes on net 

benefits to smokers, number of fires. and other factors 

depend strongly on the manner in which the changed 

cigarettes make their way into the market. Mandated 

changes will work differently from "voluntary" ones. Moreover, 

if the government is to require changes, there are quite 

different methods for doing so. 

We analyze briefly here both mandatory and "voluntary" 

approaches, concentrating on the aspects that will impinge 

upon estimation of net benefits to smokers. 

Mandated Changes 

The nature of changed cigarettes is discussed elsewhere. 

Here, we concentrate on the interactions between the 

manner in which changes are implemented and the incen~ 

tives of producers. It is clear that the more in accord are 

regulation and market incentives, the more likely the regulations will be followed. Less obvious is the fact that some 

kinds of regulation are much more compatible with incentives than others, and that taking this into account can 

improve the degree to which regulatory goals are 

achieved.38 

In the present context, there would be a choice between 

requiring that cigarettes be made a certain way (paper thick^ 

ness, tobacco weight, and so on), as opposed to requiring 

the cigarettes perform in a certain manner (for example, 

extinguish within forty seconds of being placed on a standard textile surface.) This first approach may be referred to 

as design or input standards, and the second, performance 

standards. 

Performance standards offer considerable advantages. 

Chief among these are that this method more thoroughly 

harnesses competitive market forces in support of the 

purposes of introducing the new cigarettes. Firms would be 

free to achieve the same effects using new methods that 

could reduce costs, improve the trade~offs between flamma~ 

bility and other features such as tar content, or even improve 

upon flammability itself. Also competitive forces could easily 

laThhis point is elaborated in Hubrn and Cohen (1985) 

be superior to regulatory action in dealing with the effects of 

consumer preferences among the new and old cigarette 

attributes; these preferences are essentially unknown and 

could produce unanticipated results from regulation 

A disadvantage of the performance standard approach is 

inherent in its main advantage. The market may eventually 

compete so exclusively on the exact attributes of the performance standards that the results could be perverse, 

although the adverse effects may be slow to emerge. For 

example, product development could concentrate on tech^ 

niques that work well with the particular textiles used in tests 

but work poorly with other surfaces. The experience with the 

Federal Trade Commission's tar and nicotine measurement 

service has shown that this could happen.34 If new 

cigarettes are required and performance standards are 

used, the problem of competing for the favors of the testing 

machines should be kept in mind. 

'Voluntary" Changes 

Cigarettes may become less prone to cause fires even if no 

regulations are promulgated Methods for manufacturing 

safer cigarettes may arise from federal efforts or indepen 

dently and the new cigarettes may find a place in the 

market We discuss here some of the factors (besides the 

nature of the cigarettes themselves) that will determine how 

the market adjusts to the availability of reduced flammability 

cigarettes 

The role of advertising and information 

Consumers will choose among old and new cigarettes on 

the basis of what they know about the alternatives available 

Information on new cigarettes can come from three sources: 

from government, from third parties such as health authori~ 

ties. the news media, or consumer magazines. and from 

sellers themselves through advertising. All these sources can 

be important. but we think that advertising can play the most 

important role in providing information on new cigarettes. 

Reduced flammability cigarettes will offer sellers an opportu~ 

3gCallee (1987). 

131 
nity to gain market share. This is typically achieved through 

advertising. In the past, competitive instincts have frequently 

led smaller firms to try to gain market share by agressively 

promoting new cigarettes. 

Moreover, the cigarette market has a long history of using 

health concerns in advertising as a competitive tool. History 

has also shown that market shares can change very rapidly 

when new health information is reflected in advertising. This 

happened in the 1950s when advertising helped shape 

consumers' reactions to information of cancer dangers and 

the importance of reducing tar content.40 It is likely to 

happen again in connection with reduced flammability 

cigarettes, since the new cigarettes will have little advantage 

other than in connection with fires. Under the "voluntary" 

approach, individual brands would have an incentive to 

make smokers aware of fire danger, in order to sell reduced 

flammability cigarettes. This incentive would not exist if all 

cigarettes were required to be reduced in flammability. Also, 

the advertising could be targeted at high fire-risk smokers. 

Substantiation of advertising claims about fire safety 

Cigarette advertising has traditionally been closely regulated 

by the FTC and by legislation. Advertising claims must be 

substantiated, i.e., the advertiser must rely upon a 

reasonable basis for the claim.41 The level of substantiation 

that would be required for a claim that a cigarette is less 

likely to cause fires is uncertain, although presumably a 

finding to this effect by the National Bureau of Standards 

would be sufficient. Where problems would arise is with 

cigarettes that are new and relatively untried, perhaps 

because they incorporate new techniques for reducing flammability while avoiding increases in tar and nicotine yield. 

Regular testing by the NBS. somewhat analogous to testing 

of tar and nicotine now conducted by the FTC, could 

provide a convenient benchmark for all reduced flammability 

advertising. To require that manufacturers use only the 

government standard could be counter-productive, however, 

in view of the distortions that have arisen in use of the FTCs 

tar and nicotine tests.42 

Mandated Versus Voluntary" Standards 

The advantages of mandated standards 

The main advantage of requiring reduced flammability 

cigarettes, rather than simply allowing such cigarettes to find 

their natural place in the market, is to reduce the costs of 

fires caused by smokers who do not bear or take into 

account the full costs of the fires. The extent to which fire 

dangers of smoking are a significant negative externality of 

this sort is not known. Nonetheless, if smokers do impose 

substantial fire costs on others, mandatory standards would 

have the desirable effect of reducing those costs to others, 

while raising overall costs of smoking for smokers as a 

group. 

Certain other potential advantages of mandated standards 

are less obvious. If smokers are poorly informed on the risks 

of fires. mandatory flammatory standards could force 

smokers to make approximately the choices they would have 

made if they had known the risks. This by itself is not a 

compelling argument in favor of mandatory standards, 

however. A simpler solution would be to provide the information to smokers, and let those smokers at greatest risk 

choose accordingly. 

Another potential advantage of mandatory standards is 

more subtle. If smokers who are most at risk from fires - 

i.e., those who tend to smoke in bed or fall asleep when 

smoking ~ learn that the cigarettes they smoke are less 

flammable than before, they will tend to be less careful. 

Assuming that even the improved cigarettes involve some 

fire risk, this adjustment by risky smokers would tend to 

reduce the advantages of the new cigarettes. If reduced 

flammability cigarettes were required, rather than left to the 

market, this undesirable adjustment by smokers might be 

attenuated. There would be no need for an informational 

campaign to make smokers aware of fire dangers, and cigarette companies would have little reason to advertise 

reduced flammability, On the other hand, some publicity on 

flammability would undoubtedly accompany the switch in 

cigarettes, and there is no reason to think smokers would 

long remain ignorant of the convenient fact that the 

Cigarettes were safer in certain situations. 

The advantages of voluntary standards 

The potential advantages of using market forces to determine the flammability of cigarettes fall roughly into two categories: greater freedom for consumers and greater 

incentives for producers to create the best mix of cigarette 

types. We have seen that smokers vary considerably by age, 

race and sex in their apparent risk of dying in smoke-related 

fires. This suggests that reduced flammability cigarettes 

would be far more valuable to some consumers than to 

others. Market forces would tend to direct improved 

cigarettes at these persons, and avoid imposing the costs of 

reduced flammability cigarettes on all smokers, even those '@See Caifee 119851 .. desciibino lhe sales droo of 1953 54 when cioa 

rette companies engaged in-'Year adverttsin'g'' during lhe kancei I 

scare," and lhe rapid improvemenl in iiltei cigarettes during heavily 

advertised Tar derby" of 1957-59. 

with little fire risk. 

tar and nicotine content. It seems likely that reduced flammability will involve increases in tar, nicotine, and other 

Perhaps more important would be market adjustments to 

4'See Ford and Caltee, 1986. 

.'See Calfee. forthcoming 1987 

132 
health~related ingredients. Thus the new cigarettes may 

involve a trade~off between fire risks and health risks For 

some persons, such as relatively young smokers who are at 

little risk from fires, the appropriate trade~ofl might be in 

Iavor of minimal tar and nicotine, while lor others. such as 

the elderly, the best trade-olf might be an increase in tar 

and nicotine accompanied by reduced lire danger 

would have several advantages Smokers would be able to 

choose their preferred mix of fire safety and other dangers 

Producers would have an incentive to develop and market 

an appropriate variety of such cigarettes. Moreover, the 

process of marketing the new reduced flammability 

cigarettes would probably involve providing useful in for ma^ 

tion to smokers on fire dangers and other topics. 

These considerations suggest that the voluntary approach 

Finally changing the market by means of competitive 

forces rather than by regulation offers the great advantage of 

allowing consumers to reveal their valuation of the changes 

If the new cigarettes do not sell or sell well only in a 

restricted market the reason could be that they offer little of 

value to most persons Perhaps the cigarettes would be less 

eflective in fire prevention than anticipated Perhaps the cost 

in terms of tar and nicotine would be greater than expected 

In a relatively free market a flawed experiment with reduced 

flammability cigarettes would be naturally sell limitinq On the 

other hand if the cigarettes are required vested interests in 

required product attributes could arise and these interests 

may be difficult to dislodge even when something better 

comes along 

133 

- 

The market effects of reduced flammability cigarettes may 

include changes in prices, sales, tar and nicotine yield of 

cigarettes. the manner in which smokers smoke and the 

extent to which smokers take precautions against starting 

fires. In discussing these potential changes, we pay par tic^ 

ular attention to the distinction between directly observable 

market changes, such as sales and measured tar and nico~ 

tine yield, and unobservable changes, such as variations in 

the manner of smoking and in precautions against setting 

fires. 

We cannot predict in quantitative terms any of these 

changes. We lack data on the nature of the new cigarettes, 

and even if we had such data, we lack information on how 

smokers are likely to react to the changes in cigarettes. What 

we can do is point out some of the likely changes in qualitative terms, and describe some factors that will help deter^ 

mine what happens. 

The cigarette market has a long history of rapid change in 

the face of new circumstances. The taste of cigarettes, for 

example, has evolved greatly, beginning with the develop^ 

ment of the blend that first made Camel brand successful 

after World War I, and continuing to the present day, as 

flavor is modified to offset reductions in tar and nicotine. 

Some modifications have apparently been made in response 

to changes in consumer preferences, as when cigarettes 

increased in length from 70 to 85 millimeters after World War 

II, and later, from 85 to 100 mm or more. More striking were 

the events of the 1950s when spontaneous health~related 

advertising and "tar derbies" permanently altered the mix of 

cigarettes available.43 Thus we know that competitive forces 

can being rapid changes in the cigarette market. 

the final results, will depend on a number of factors. These 

include the factors already discussed: the nature of the 

cigarettes (self-extinguishing, reduced ignition propensity, 

changes in burning characteristics, changes in taste and in 

tar and nicotine content), the exact manner in which new 

cigarettes are introduced (design standards, performance 

Before discussing specific factors, we note a general point. 

The rapidity with which competition will bring change, and 

"See Cake 11985) 

standards, no mandatory standards), the nature of consumer 

information about changes in flammability and tarinicotine 

yield, and cost increases. These factors will naturally interact 

over time. For example, the relations between flammability, 

tar and nicotine yield, and cost increases. These factors will 

naturally interact over time. For example, the relations 

between flammability, tar and nicotine yield. and taste may 

change in response to new technology and market demand. 

In addition. market forces will be affected by changes in 

consumer behavior, and vice versa, so the factors discussed 

in this section, on observable market changes, depend 

partly on those described in the next section. which is on 

smoker behavior. 

Since we lack information on many of these specific 

factors, as well as reliable predictions of how they interact. 

we can do no more than suggest how the market will look 

after reduced flammability cigarettes are introduced. 

Price Changes 

An increase in the costs of cigarette production. due to 

reduced flammability requirements. would operate very 

much like an increased cigarette tax. Recent analyses of the 

response of the cigarette market to past tax increases have 

generally concluded that prices adlust by about the amount 

of the tax increase, which is what one would expect in a 

market that is roughly competitive.44 We think it likely, there^ 

fore, that cigarette prices would increase by the full amount 

of any increase in costs, but no more. 

Changes In Overall Market Demand 

Estimating overall demand for reduced flammability 

cigarettes is difficult because we know so little about the 

cigarettes themselves. Demand will be influenced by price. 

smoking characteristics (such as need to relight. strength of 

44For example, Barzel found a tax elasticity ol price of +I 065. WhicI, he 

ascribed io urimcasured qualify changes rather fiiai~ nommargmal 

COS! pricirlg [Porter af p 4561 Also see Bimnci (1981), and the review 

til Poriei 1986, a! pp 456-458 

135 
'draw" necessary to pull smoke through the filter, and so on), 

taste and potency of cigarette smoke (determined by tar. 

nicotine, flavorings, and degree of dilution with air), 

perceived flammability, and perceived changes in health^ 

related ingredients such as tar and nicotine. 

Of these factors, only the influence of price is straightforward. A number of studies have attempted to assess the 

price elasticity of demand for igarettes. The findings generally range from around -0.22 to about -1.20. with a cluster 

at roughly -0.50.45 This suggests that a two percent 

increase in price would cause about a one percent 

decrease in overall sales. This prediction should be treated 

with caution. For one thing, some investigators have found 

that response to price changes varies substantially among 

socio-economic groups, and overall changes in demand 

consists partly of changes in the decistion to take up 

smoking or quit, especially among youths.46 Thus response 

to pride changes may be concentrated in certain groups, 

and long~run effects may differ from short-run effects. 

We can assume that changes in cigarette taste and 

smoking characteristics will also tend to reduce demand. 

The question is the magnitude of effects. Unfortunately, we 

know neither the likely changes in cigarettes, nor how 

smokers are likely to react to these changes." In theory, 

reductions in smoking quality can be treated as equivalent 

to price increases. the price increase being roughly what 

one would have to pay a smoker to smoke the reduced 

flammability brand instead of his old brand - or, somewhat 

equivalently, what the smoker would pay for the privilege of 

sticking with the old brand.48 

One thing that seems clear is that self-extinguishing 

cigarettes are likely to dampen demand more than reduced 

ignition types. Self-extinguishing brands would be more 

inconvenient to smoke, would tend to produce larger tar and 

nicotine ratings because of the way they are constructed 

and the kinds of tobacco they would contain, and would 

tend to yield even more tar and nicotine because of the 

faster puffing that would be encouraged. 

"For example Lynn and Simon (1968) estimated a pnce eiasticity of 

-0,511. Vemon, Rives, and Naylor (19691. iooking tobacco prices esbmated a pnce elasticity of -0.43. ippolto, Murphy and Sant (1979) 

found a value of -0.81. and ippoiito and ippoiito (1984). -0.48 

Schneider. Benjamin and Murphy (1981) found a iarger value of around 

-1.22. whereas Porter (1986) found much smaller values of around 

- 0.25. 

16Lewitt and Coate, 1982. 

"The demand for new producis can be forecast by collecting emprricai 

data about likely consumer acceptance through a varrety of methods 

including focus groups, experiments, surveys and other means or 

through using information about the demand for other simiiar 

products We were not aware of any available empirical data that couid 

be used to help forecast the demand for reduced ignition propensity 

or self-extinguishrng ngarettes. nor d!d we have the funds to gather 

our own. Similariy we were not able to identify any products. services 

or situations that were simiiar enough to this product to help us forecast demand. 

'8Cf. the approach in lppolito and ippoirto (1984). 

It is most difficult to guess the magnitude of these effects 

on demand. On one extreme would be a cigarette that is 

virtually unchanged from current varieties except for a 

special coating that reduces ignition propensity. Then most 

of the effect on demand would come through higher price, 

which is likely to be a small change in view of the fact that 

most of the price of current cigarettes reflect factors other 

than direct manufacturing costs. If costs were to increase by, 

say, two percent (about two cents per package), demand 

would decline by roughly half that (assuming a price 

elasticity of -0.5), or one percent. At the other extreme 

would be a cigarette that costs more to produce, is 

distasteful, yields more tar and nicotine, and is inconvenient 

to deal with (because of self-extinguishing.) One could easily 

imagine that if all cigarettes were changed in this manner, 

sales would decline substantially. 

rather than through mandated standards, there seems little 

reason to expect substantial decreases in demand. The fact 

that the new cigarettes are safer to smoke in bed, would 

tend to cause a slight increase in demand. There seems no 

reason, however, to think this effect (which would operate 

regardless of whether standards are mandatory or voluntary) 

would be substantial. 

If reduced flammability cigarettes are introduced voluntarily 

Changes in Tar, Nicotine, and Other HealthRelated Ingredients 

The effect of reduced flammability cigarettes on tar and nico 

tine yield can be broken into two parts: changes in measured yield, as documented by the FTCs smoking machines. 

and additional changes - uncaptured by the FTCs measurement methods - that occur as a result of smokers' 

'tompensation," Le., adjustments in smoking behavior in 

response to changed characteristics of cigarettes. We begin 

with changes in measured yield. 

Again we must emphasize that we lack data not only on 

the construction of reduced flammability cigarettes, but also 

on exactly how changes in construction would affect measured tar and nicotine yield. A few points are relatively clear, 

however. Self-extinguishing cigarettes (those which are 

designed to go out if not puffed frequently) could increase 

tar and nicotine yield substantially, because such cigarettes 

would probably employ reduced paper porosity and/or 

increased tobacco density. As we noted in section 3. both 

these techniques tend to reverse changes that have been 

used to reduce tar and nicotine in smoke. 

On the other hand, reduced ignition cigarettes (those 

designed to avoid starting fires when placed on a substrate) 

would tend to work in the opposite direction. These 

cigarettes would probably be faster burning and therfore 

yield fewer puffs per unit length. If the cigarettes were not 

lengthened proportionately, they would probably produce 

improved tar and nicotine ratings since FTCs smoking 

136 
machines puff at a constant rate. It IS well known that many 

current low~tar brands achieve their low ratings partly 

because of fewer puffs on the FTCs machines.dg 

Changes that affect the yield of individual brands will not 

be translated directly into changes in yield for cigarettes in 

the aggregated, however. Smokers are aware of the health 

hazards of smoking.50 and take these hazards into account 

in their decisions on how much to smoke and what type of 

cigarette to ~moke.~' Smokers will switch brands in response 

to changes in yield (as well as changes in taste and 

smoking characteristics.) Thus if, for example, all brands 

were required to make changes that increased yield. 

smokers would presumably switch to brands that resembled 

what they had previously smoked, or brands would alter 

other aspects of cigarette construction to reach their former 

ratings. Thus the main effect of changes that tend to 

increase yield would probably be on the lower range of 

existing yields As we noted earlier, the primary effect of 

implementing self-extinguishing cigarettes would be to elimi~ 

nate the very lowest yield brands (the "ultra-low" brands5*) 

while leaving other brands relatively unaffected. 

behavior that occur in response to changed cigarettes but 

may not be captured by the FTCs smoking machines ~ can 

be as great or greater than the changes already discussed. 

Both kinds of cigarettes ~ selfCextinguishing and reduced 

ignition ~ could be affected substantially, since both types 

would encourage smokers to puff more rapidly than the FTC 

smoking machines. These and other types of unrecorded 

compensatory behavior could easily distort measured ratings 

of tar and nicotine yield 53 The degradation in selfk 

extinguishing cigarettes could be worse than suggested by 

ratings. and the improvements in reduced ignition types 

could be illusory. On the other hand, if the method of 

treating tobacco with a silica gel so as to promote selfextinguishing on a substrate but not an ashtray proves to be 

successful. many of these problems would not occur. 

Smoker 'tompensation" - i.e , changes in smoking 

Methods of implementing reduced flammability cigarettes 

would also make an important difference. If new cigarettes 

are mandated, using performance standards instead of 

design standards would allow more freedom to adjust tar 

and nicotine along with flammability, and might prevent 

some adverse developments If standards are voluntary 

instead of required, smokers who are relatively more at risk 

from fires than from long-term health effects of smoking (for 

example. elderly persons who smoke only moderately) may 

choose different cigarettes from those with opposite 

concerns 

Finally, we note that increases in tar yield, whether 

intended or not, could have health consequences equal to 

or greater than those associated with fires started by 

cigarettes. Epidemiological studies strongly indicate that past 

reductions in tar yield substantially reduced the incidence of 

lung cancer5Gven the relatively small number of deaths 

associated with fires started by cigarettes. and the apparently large number of lung cancer deaths associated with 

smoking. even a modest increase in lung cancer rates could 

offset a dramatic reduction in fire deaths 

Changes in Taking Precautions 

Against Fires 

Smokers who knowingly smoke reduced flammability 

cigarettes may alter their behavior toward fire prevention. 

Smokers presumably choose a level of precaution that 

balances the risks of fires reduced, many persons may 

smoke in situations where formerly they avoided smoking ~ 

in bed. for example, or when about to fall asleep in a chair 

One effect would be simply an increase in overall cigarette 

consumption. although this effect seems likely to be slight 

More important. perhaps, is the potential impact on fire 

prevention. To the extent that people become less careful, 

the deffect of safer cigarettes will be diluted ~ unless the 

cigarettes are completely safe, of course, which seems 

unlikely. In theory. there could actually be a net increase in 

fires (presumably offset by a great increase in the 

conveniences of smoking), rather than the intended 

decrease We see no reason to expect such a drastic effect. 

however But it is possible that the net effect of reduced 

flammability cigarettes on fires could be less than predicted 

because of changes in consumer behavior 

'gKorlowski (1981 ) 

50Recent Nafional lnslifutcs of Health survey data indicafe fhat the 

following proporirons of the popularron are aware fhal smoking 

increases rrsk far these drseases lung cancel YS%,. emphysema, 

Y20% heart disease, 91%. cancer of fhe larynx. 88% chronic bron~ 

chitis. 87% cancer 01 the esophagus. 80% low birth weight 01 

newborn. 80% mrscarrrage !n pregnancy 74% National Center lor 

Health Sfafrstics (1985). pp. 7-8. 

51 Jhe mosf authontative recenf study, which takes !nto account smokers' 

taste lor tar and nicotine as well as health concerns. estimated fhat 

between 1953 and 1980. smokers reduced rota/ mi camta nicotine 

!;,take by about two~thrids lppolifo and lppolito (1984), p 62, Table 1 

52Ben0w~t~. et ai (1986) 53 The ltferalurr on curnoensahon IS extensive and somewhal mixed in its 

idLee and Garlinkel (7981). Lubm et ai (19841, Partrcrpants in the Fourfh 

Scarborough Conlemricr on Preventwe Mrdrcrnc 11985). Pet0 (19851 ~~ 

assessmenf 01 overal; ellects on what actually reaches smokers' lungs 

Some 01 thrs research is summanzed !n US Publrc Health Service 

1984, chapter 6, and mom recently in Callee (1986) ai n 119, and 

Callee (1987) 

137 

- 

"Consumer< surplus" is a technical term that refers to the 

value that consumers obtain from a product, beyond what 

they pay for the product. It is roughly the difference between 

what is actually paid and what individuals would have paid 

for the product. Competitive markets, in which all consumers 

pay the same price regardless of how much the desire the 

product, can produce large amounts of consumer surplus. 

This can be usual downward-sloping demand curve. Regulatory policies are commonly judged partly by their effects on 

consumer surplus, since consumer surplus represents net 

costs and benefits to the consumer of the product in 

question. 

Consumer surplus is affected by changes in price or shifts 

in the demand curve itself. The introduction of reduced flam 

mability cigarettes would raise prices and would tend to shift 

the demand curve as the result of three factors: perceived 

effects of fire safety, perceived effects on health (from 

changed tar and nicotine), and changes in taste and 

smoking characteristics. In principle, the changes in 

consumer surplus for all these factors, plus whatever costs 

are not taken into account by smokers, would tell us the net 

benefits or costs of introducing the new cigarettes. Two of 

these factors. fire costs and health effects, are being dealt 

with in other reports on reduced flammability cigarettes. 

Thus we are directly conserned with the effects on 

consumer surplus of changes in price and smoking characteristics. 

Since we do not know how the new cigarettes would be 

different, nor do we have any data on how smokers would 

react to the kinds of changes under consideration, we 

cannot make reliable predictions of the magnitude of 

changes in consumer surplus. What we can do is perform 

some hypothetical calculations. This is more easily done for 

price changes. We assume a price elasticity of -0.5 or 

-1.00 (which approximates most empirical estimates), and 

an adult population of about 180 million. The small prop or^ 

tion of consumer income involved allows simple estimates of 

consumer surplus.55 In these conditions. a price increase of 

two percent would reduce consumer surplus by about one 

percent of current revenues, or about $627 million (If popu~ 

lation or prices are changed, the results would change 

proportionally.) 

For changes in cigarette taste or smoking characteristics 

such as :he necessity to relight occasionally, all consumer 

surplus estimates are speculative The only work we are 

aware that attempts to estimate smokers' value of the taste of 

cigarettes is the study by lppolito and lppolito (1984.) They 

found that abstracting from health consequences, the 

average smoker in the year 1980 placed a negative value of 

approximately fifteen cents per pack on the approximately 

one~third reduction in nicotine content that had taken place 

since 1953. Although this result is suggestive, it may reflect 

primarily the value that smokers place on the psychological 

and physiological properties of nicotine. These are quite 

different from the changes in flavoring, draw and other 

smoking characteristics that might accompany reduced flam~ 

mability cigarettes. We can offer no more than illustrative 

calculations. based on the notion that degradation in 

smoking characteristics could be valued by smokers as 

equivalent to an increase in price. In that case, Table 1 

provides estimates of changes in consumer surplus 

associated with various perceived price increases. 

For similar reasons, the lppolito and lppolito study cannot 

be used to deal with one of the most striking aspects of 

reduced flammability cigarettes, the possible inconvenience 

of having to relight occasionally. The most we can say is that 

it seems plausible that smokers would pay significant 

amounts to avoid such an inconvenience. Thus again. one 

can think of the negative aspects of self-extinguishing 

cigarettes as being roughly equivalent to price increases. 

Two other points merit emphasis. One is that our calcula~ 

tions do not take into account changes in either fire occurrence or health aspects of smoking. both of which are dealt 

with in other reports. Increases in tar yield would shift the 

demand curve downward, perhaps sharply downward, and 

this could result in much larger changes in consumer 

surplus: :he effects of reducing the risk of fires would tend in 

the opposite direction. Finally the use of voluntary rather 

than mandated standards, could reduce the estimated 

losses in consumer surplus dramatically by concentrating 

charged cigarettes in certain socio~economic segments, 

while leaving the rest of the market relatively unchanged. 

?See Willig (7976) 

139 
Table 2. Changes in Consumer Surplus from Price Changes 

% change 

in price 

1 

2 

3 

4 

5 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

12 

14 

16 

18 

20 

20 

Table 2. Changes in Consumer Surplus from Price Changes 

* Approximation, assuming linear demand curve and no income effect.56 

elasticity 

of demand 

-0.50 

-0.50 

-0.50 

-0.50 

-0.50 

-1.00 

-1.00 

-1.00 

-1.00 

-1.00 

-0.50 

-0.50 

-0.50 

-0.50 

-0.50 

-0.50 

-0.50 

-0.50 

-0.50 

-0.50 

-2.00 

price 

peak 

$1.00 

$1.00 

$1.00 

$1.00 

$1.00 

$1.00 

$1.00 

$1.00 

$1.00 

$1.00 

$1.00 

$1.00 

$1.00 

$1.00 

$1.00 

$1.00 

$1.00 

$1.00 

$1.00 

$1.00 

$1.00 

annual 

consump. 

per adult 

17 5 

175 

175 

175 

175 

175 

175 

175 

175 

175 

175 

175 

175 

175 

175 

175 

175 

175 

175 

175 

175 

adult pop. 

in millions 

180 

180 

180 

180 

180 

180 

180 

180 

180 

180 

180 

180 

180 

180 

180 

180 

180 

180 

180 

180 

180 

change 

in consumer 

surplus" 

(in mill. $) 

-314 

-627 

-938 

-1247 

-1555 

-313 

-624 

-931 

-1235 

-1536 

-1862 

-2166 

- 2470 

-2771 

- 3071 

-3667 

-4256 

-4838 

-5415 

-5985 

- 5040 

?See Wdhg (1976 J 

140 
7.Appendix: 

The Demographic I and Socioeconomic 

Characteristics of Smokers 

The National Center for Health Statistics (1986) estimates that 

over 48 million persons over twenty are current smokers and 

that almost 40 million more are former smoker^.^' Thus, well 

over fifty percent of the adult population has at some time 

been or still is a smoker, undoubtedly making smoking one 

of the most commonly engaged in behaviors in American 

society. But despite being one of the most ubiguitous of 

American activities. fairly large differences exist among 

various subgroups of the population in terms of the percen~ 

tages who smoke, the amount smoked and in the kinds of 

cigarettes that are smoked. This section describes who 

smokes and who does not, who is quitting and who IS 

starting. Our purpose is to provide a rough description of 

the characteristics of the future smoking population. 

Characteristics of Smokers 

As alluded to above and as shown in more detail in Table 3 

approximately 53 percent of the US population were or 

currently are smokers 58 Overall 62 percent of white males 

and 56 percent of black males were or are smokers Less 

than half of all females have tried smoking and as was the 

pattern for males a greater percentage of white females 

have smoked than have black females 

57Aq noted in fhr main texf il r~~nagers who air regular Smokers are rncludcd !he Iota1 number of makers is closer Io 52 mrllion 

58ihe dafa in thc analyses thaf lollow were derived liom two SoUrCeS 

NCHS smoking dafa lor 1986 whrch will be incorporafed into Healfh 

86 and Populafion esfimaies derived liom the Bureau 01 Census 

Since fhe census esfimates are lor July 1 1985 and the smokrng data 

are for 1986 the data are sbghfly inaccurate We do not expect fhis to 

represen! any major weaknesses m our analysis however We have 

Imitcd our analysis to those aged twenty and above 

Table 3. Distribution of U.S. Population 

by Age, Race, and Sex, July 1, 1985 

Ratio of Smokers and Former Smokers 

to Total 

Males Females Totals 

White Black White Black * ____ ~~ ~~ ~ 

20~24 0.387 0.294 0.434 0.287 0393 

25-34 0.544 0.511 0484 0.427 0508 

3544 0.667 9612 0.504 0.538 0.584 

4564 0735 0.773 0.509 0.495 0.618 

>65 0.697 0.602 0.319 0 297 0.466 

Totals 0.622 0.560 0.455 0.425 0.530 

Examination of the marginal percentages for age reveals that 

a monotonically increasing percentage of the population has 

been or currently is a smoker until the 65 or older age cate 

gory Slightly less than 40 percent of those 20 24 are or 

were smokers compared to over fifty percent of those aged 

25 34 The percentage of those who have smoked or are 

smokers begins to level off at close to sixty percent for those 

between 35 and 64 years of age Less than fifty percent of 

those 65 or older have been or are smokers 59 The 

individual cells of Table 3 indicate that white females have 

the highest former or current smoking participation rates of 

the 20 24 age group From age 25 to 44 a larger 

597he reason there is such a large drop in thc percenfages of !hose 65 

md over who arc or were smokers ai some f!me is probably due to 

the higher m~italify rates lor smokers than noiisrnokeis Esscnlrally, 

nonsmokers live longer than smokers arid this is ictlected mas1 

dramafically m the moitabty rates or those who are ai leasf 65 years 

old. See. generally Smoking and Health (1979j. lable 1. p 2~11 and 

iahle 2, p. 2~12 

141 
percentage of white males have smoked or do smoke than 

do black males or both groups of females. In the 45-64 age 

group over three-quarters of black males are or were 

smokers, as are 73 percent of white males. 

The data summarized in Table 3 represents merely a 

cross-section, albeit based on the most recent information, 

of the percentage of smokers and former smokers in the 

population. Longitudinal analysis reveals that for the males 

the percentage of current smokers has been declining rather 

steadily since 1955, while simultaneously the percentage of 

former smokers has been increasing quite steadily. For 

example, in 1955 the percentage of males who were current 

smokers was approximately 52 percent and the percentage 

of former smokers was three percent. By 1975 these percentages became approximately, 40 and 28 percent, respectively.6° In 1986, the percentage of male current smokers 

was 33.2 percent while the former smokers were 31.9 

percent.6' If these trends continue, by 1990 for the first time 

in history, more males will be classified as former smokers 

than as current smokers. 

The data for female smokers follows a similar if less 

dramatic pattern.62 This is due, apparently, to two conflicting 

factors. First, smoking participation rates of women have 

lagged the smoking patterns of men by 20 to 30 years.63 In 

1955, for example, less than 25 percent of women were 

current smokers, while by 1965 this percentage had 

increased to 35 percent, which was just about the peak 

smoking participation rate for w0men.6~ Second, just as the 

smoking participation rates of women were increasing, the 

first Surgeon General's report on smoking was published (in 

1964) and concerns about smoking and adverse health 

consequences grew. This information apparently influenced 

decisions to start and stop smoking, with the net result that 

by 1975 approximately 30 percent of women were current 

smokers and 15 percent were former smokers.65 By 1986, 

279 percent of women were current smokers and 18.7 

Dercent were former smokers.S6 

Those Who Are Stopping Smoking 

To what extent have those who smoked continued or quit? 

Some data about this question is provided in Table 4, which 

shows the ratio of the percentage distribution of smokers by 

age, race, and sex to the percentage distribution of smokers 

and former smokers on the same variables. A ratio of 

greater than one indicates that a relatively greater 

percentage of members of a cell have continued to smoke 

than have quit. 

?Shopland and Brown (1985.) 

6'NCHS (1986.) 

Yn a study oismoking iniliation and cessahon rates lor age cohoris by 

sex, Harris concludes, "Recent smokrng cessation rates among women 

thus appear to fail below those of men for age cohon.' (Harris, 1983, 

p. 477) 

"Harris (1983); Loeb, Ernster Warner Abbolls, and Lazlo (1984); Hoim 

and Kessler (1986) at p. 426. 

64Shopland and Brown (1985.) 

65Shopland and Brown (1985.) 

Table 4. Distribution of U.S. Population 

by Age, Race, and Sex, July 1, 1985 

Ratio of Smokers and Former Smokers 

Males Females Totals 

__ 

Age White Black White Black 

-__ ____ __ 

20-24 1.339 1.296 1.342 1.586 1.351 

25-34 1.177 1.402 1.172 1.450 1.204 

35-44 0.951 1.217 1.085 1.332 1.038 

45~64 0.776 1.090 1.047 1.219 0.917 

>65 0.472 0.789 0.693 0.826 0.580 

Totals 0.897 1.185 1.067 1.308 1,000 

The data in Table 4 indicates that as smokers age, relatively 

greater percentages quit than continue. For example, the 

ratios of the percentages of smokers to the total of current 

and former smokers are well over 1.0 for those between 20 

and 34 and decline monotonically by age group. This indiL 

cates that relatively few of those in their twenties who have 

66NCHS (1986) For males smoking participaiion fates are rnveisely 

related lo socioeconomic swus. This IS especially lrue for males, as 

lor exampie, in 1981 almosl blty~eighl percenl of males wiih a grade 

school educalion were smokers versus less lhan twenty percenl of 

males wilh a graduate degree (Remmglon et ai., 1985). Smrlar 

findings were reported for occupationai categories. i.e., accordrng to 

lhe Surgeon Generais repart of 1985, 33 percenf 01 whiie collar 

workers are currenl smokers versus 47 percent 01 blue collar 

employees (Surgeon General 1985, p 25) and smoking parlicipaiion 

rates decline monotonically as incomes increase. (NCHS, Supplement 

lo Advance Dala No. 118, 1983, able 6A) 

The data for females are not nearly as clear cur. Although smoking 

pait!cipal!on rates decime as females' income mcreases, and a lower 

pefceniage of wornen with at least Some coiiege education smohe 

than do women wilh less education, women with less lhan hrgh 

school education smoke less than do women with a high schooi 

degree (NCHS, Supplemeni io Advance Data No. 118, Table SE). Simrlarlv although 26.5 percent of women professionals are smokers, 38.3 

percent of women managers smoke, compared to 333 percent 01 

women sales workers, 38.1 pefcenl of women blue collar workers and 

33.0 percenl of homemakers (Surgeon General 1985, p, 25) Thus. /he 

degree of consblency in smoking particpation rates. evidenced by 

men are not found lor women 

142 
tried smoking have decided to discontinue the practice. 

Conversely, relatively more of those 45 and over have 

decided to quit rather than contin~e.~’ 

group with a ratio of less than one, indicating that they are 

the only group with relatively higher percentages of quitters 

than smokers 68 Except for those 65 and older, black males 

who smoke, and black females in particular, are not quitting 

Among the race and sex groups, white males are the only 

in the same rates as are whites 

These data are consistent with trend data in other sources 

For example, the 1983 Surgeon Generars report indicated 

that the percentage of white males who indicated they were 

current smokers declined steadily from 51 percent to 37 

percent, while the percentages of those indicating they were 

former smokers increased steadily from 21 percent to 32 

percent in surveys taken in 1965. 1976 and 1980. This same 

report also showed that although the percentage of black 

males who reported being current smokers declined over all 

three periods, from almost 60 percent to approximately 45 

percent, it still remained much higher than for white male 

smokers. Also. the percentage of black male former smokers 

was substantially less at approximately 20 percent in 19E0.b9 

The data for women indicate that the percentage of both 

white and black women smokers decreased only slightly 

from 1965 to 1980, as 34.5 percent of white women and 

32.7 of black women smoked in 1965. In 1980 these data 

were 30 percent and 306 percent for white and black 

women, re~pectively.’~ These data also indicate that a 

smaller percentage of black women are quitting than are 

white women. In 1980, 16,3 percent of white women and 

11.8 percent of black women were former smokers.” 

b7These numbcrs are confounded by lhe morlabty ralios of smokers and 

former smokers Since former smokers live longer lhan smokers, lhe 

rabos wrll show ielabveiy more lormei smokers than would be lhe case 

il smokers and former smokers had srmilai mortaB1y rates This 

confound is lrkrly 10 be most pronounced !n the oldest age group. in 

which the differences in morlalrty rates are most evident. Harrrs (1983. 

p 474). presenls a melhod far correclmg the drfferential morlallly rates 

01 smokers and nonsmokers. 

members who have become smokers. 

6801 course, fhey are aiso the group with lhe highesl percentage of 

8gUnited Slales Public Health Service [1983,) p 367 

7oUniled Sales Pubbc Health (7983,) p 367 

“Unrted States Public Health Service (7983.) p 367 The Socioeconomic 

characlerist~cs of [hose who are qurlting smoking are for ali inlents and 

purposes the converse of lhose of smokers Males in higher Socioeco~ 

nomic groups have qui1 at hrgher rates lhan have males in lower 

socioeconomic groups when measured !n terms of occupation. 

(Surgeon General 1985. pps 33 40.1, and income (NCHS. 7986, 

Supplemen1 to Advance Data No. 118, Table SA) 

Agarn. for women lhe data are less c~nsislent By 7980, a greater 

percentage of women than men proiessionals smoked, because male 

proiessronals had a higher quit rate than did females (Surgeon 

General 7985, pps 5.38) Nonelheless. lhe percentage of while collar 

women who smoke decreased from 36 I percent m 1970 to 31 9 

percenl in 1980, whrte lhe percentage of blue collar workers who 

smoke remained ielalively constant over that lime period. and equalled 

38 7 percent in 1980 Similarly, in 1980, 33.8 percent of while collar 

female workers and 249 percent of blue collar femaie emptoyees were 

Classiiied as former smokers (Surgeon General 1985, p 34) 

Those Who Are Starting to Smoke 

The focus of the preceding discussion was to summarize 

what is known about the demographic and socioeconomic 

characteristics of those who smoke and of those who are 

quitting. To perform a comprehensive analysis of the charac~ 

teristics of the future smoking population, we require similar 

information about those who might be described as begin^ 

ning or new smokers. Unfortunately, we have not been as 

successful in locating comparable information about new 

smokers. Specifically, although some information exists about 

the age, race and sex of teenage and other beginning 

smokers, little information exists about their socioeconomic 

characteristics. 

One way by which to answer the question of who are the 

new smokers is to analyze smoking participation rates by 

age, race and sex in order to learn whether people tend to 

start smoking when they are teenagers or whether any such 

findings vary by race and sex. Examination of this data indi~ 

cates that by age 35 the percentage of current smokers 

levels off or egins to decline for white males and females 

Black males and females appear to begin smoking at a 

somewhat older age than do whites. continue adding 

smokers in larger percentages than whites as they age, and 

do not quit smoking at as high a rate as do whites. Consequently, their smoking participation rates do not decline until 

the 45~64 age group for females and 65 years and older 

group for males. 

For whites, it appears that most smokers begin smoking 

(or begin experimenting with smoking) when they are 

teenagers or by the time they are twenty-four years old. For 

example, 31.6 percent of white males and 33.1 percent of 

white females in the 20 to 24 year old age group, are 

sm~kers.‘~ Also, based on existing data it was estimated 

earlier in this report that smoking participation rates were 

only three percent less in the 17-19 age group than in the 

20~24 age group. In contrast, for the 25 to 34 year olds, the 

percentages of current smokers are 37.3 percent and 32.0 

percent for males and females, respe~tively.’~ Thus, among 

“NCHS, Health 86. preliminary. 

”As was noted earllei white male smokers do not quite in large 

numbers until they are 35 years old and over For example, only 11 5 

percent of white mates and 11 9 percenl of while females in the 20-24 

age group are former smokers in the 25534 age group the 

correspondmg percentages are 205 ior whrle males and 17.9 ior while 

iemales By age 44, the percenlage of white males who are former 

smokers has rncreased 10 33.6 percent and it increases steadily to 

over 54 percent of those 65 and older By conlrasl. only 21.1 percent 

of white females in the 25~34 year old age group are former smokers 

and this percentage reaches its iargest value of 22 1 in the 35.44 year 

old age group (NCHS, Heallh 86, preliminary). 

Since as while males age, increasing percentages move into lhe 

former smoker category while the overall percentage of smokers 

remains relatively conslant (at /east until age 35) some white males are 

always moving irom the nonsmoker to the smoker category. For 

exampie, comparrng 2G.24 white males wrth theri 25-34 year old counlerparfs. the percentage of smokers increases ham 31 6 lo 373 

percent, the former smokers increase from I1 5 lo 20.5 percent and 

lhe nonsmokers decline from 569 lo 42 2 percent. rhus. although the 

17 to 19 year old age group appears lo represent lhe age when the 

largest percentage of individuals begin smoking. people contlnually 

enter and ex11 the smoking calegoiy For white males lhe decrease m 

lhe percentage of nonsmokers does not slop until the 45 and over 

age group [NCHS, Heallh 86, prelimmary). 

143 
white male and female smokers the most substantiai 

increases in the percentages of smokers occur between the 

ages of 17 and 24. 

In the 20~24 age group, 27.5 percent of black males and 

28.3 percent of black females are smokers.74 For black 

males, the percentage remains at about 45 percent from 

ages 25 to 64, while for females the percentage of smokers 

increases until it peaks at 40.4 percent in the 35-44 year old 

age gro~p.'~ The percentage of former smokers among 

black males is a low 15.8 percent in those aged 20 to 44, 

while for black females the corresponding percentage is 

even smaller - 9.9. 

What these statistics indicate is that although the largest 

percentage of new smokers is in 17-24 year old category, 

(and as will be shown in the next section, in the 17-19 year 

old age category in particular), significant percentages of 

blacks continue to start smoking as they age. For example, 

27.5 percent of black males between the ages of 20 and 24 

are smokers while the corresponding percentage for those 

between the agges of 25 and 34 is 45.5 percent. The 

percentages of former smokers in these two age groups are 

11.2 and 13.8 for the 20-24 year olds and 25~34 year olds, 

respectively. 

In sum. our analysis of those who are starting to smoke 

reveals that the largest increase in smokers occurs in the 17 

to 24 year old age group and that this statistic holds regardless of the sex or race of the smoker. That said, it remains 

true that regardless of race or sex, in all age categories up 

to approximately 45, the percentage of new smokers is 

substantial since smoking participation rates do not fall 

dramatically even though some smokers are quitting. The 

former smoker statistics indicate that white smokers both quit 

smoking earlier and at higher rates than do black smokers. 

The most useful source of information about the demographic and socioeconomic characteristics of adolescent 

smokers that we located was the 1982 Surgeon Generavs 

report on smoking and health. The data in that report indiL 

cate that smoking behavior is inversely related to parental 

status, i. e., the lower the income and education of the 

For blacks, the findings are similar but not as pronounced. 

"As was the case with the 17-19 year old white males and females. the 

percentage of black 17-19 year oids that smoke was estimaied at three 

percent iess lhan the percentage of 20-24 year old black males and 

females who smoke 

'INCHS, Health 86, preliminary 

parents, the higher the smoking prevalence.'' Consistent 

with this is the finding that scholastic achievement and aspiration are also inversely related to smoking prevalence. For 

example, one study found that 9.0 percent of boys and 12.0 

percent of girls in college preparatory cources smoked 

compared to 18.3 percent of boys and 20.1 percent of in 

other curricula.'* 

Of course the infiuence of peers and parents also is 

strongly related to smoking. 'Adolescents are more likely to 

smoke if either or both their parents smoke than if they do 

not."7s Also, smoking prevalence is highly correlated with 

self-reports of having friends who smoke.80 One National 

Institute of education study found that 87.6 percent of boys 

and 94.0 percent of girls who smoked reported that at least 

one of their four "best friends" smoked. In contrast, only 33.8 

percent of the boys and 32.9 percent of the girls who were 

nonsmokers reported having at least one of their four best 

friends who were smokers.8' 

of teenage smokers was summarized earlier. We noted that 

approximately 4 percent of 12-14 year olds. thirteen percent 

of 15-16 year olds, and 19.6 percent of males and 27.0 

The data that exists about the demographic characteristics 

T~niled States Public Health Service (1982.) Theie does not appear to 

be as much informatm available about adolescent smokers as there 

IS about older smokers. ''Strong correlations between smoking and a 

number of demographic and psychosocial variables have been 

reported, but casual conneclions have not been established. Neither 

has ihe sef "predrspasing factors" been often subjected io multivaiiaie 

analysis. It IS rare thai more than one or iwo variables have been 

tested s~mullaneously" United Siaies Pubic Health Service (1982) p. 

281. 

7lUnited Srates Public Health Service (1982)). pp. 281~282. 

"Unrted States Pubhc Health Service (1982). p. 286. 

Ylnited Siates Public Health Service (1982J). pp. 282. 

VI has not been demonslrated, howevei ihat is the behavior of friends 

rather than lhe incl!nat!on~ oi ihe adolescent whrch influences him or 

her to smoke." Uniled States Publfc Health Service (1982)). p. 284. 

S'Umied States Pubtrc Health Service /1982), p. 284. 
percent of females aged 1718 were smokersaz The smoking 

rates of 17-19 year olds were found to be slightly less than 

those for 20 24 year olds and were estimated at three 

percent less than the rates for 20 to 24 year old smokers for 

purposes of our calculations 

The Age, Race and Sex Distribution 

of New Smokers 

Even though the vast majority of smokers will continue to 

smoke from one year to the next, the smoking population is 

dynamic as some of its members die or quit as others begin 

to smoke. Therefore, we attempted to analyze age, face and 

sex characteristics of new smokers. Our methodology and 

results are described below. 

Our estimates are based on three types of data: the 

percentage of smokers by age, race and sex as provided 

NCHS: the percentage of former smokers by age, race and 

sex from the same source; and the distribution of the population by age, race and sex as estimated by the Bureau of 

the Census. The methodology was as follows. 

The NCHS data describes the probability that an 

individual of a certain age, race and sex will be a smoker, a 

former smoker or nonsmoker. Since these probabilities 

changes as the person ages, we can calculate the total 

percentage of new smokers within a given age category by 

adding the marginal increase (decrease) in current smokers 

from one age group to the next, to the marginal increase in 

the number of former smokers in that age group. The 

resulting total includes both the increase in the absolute 

number of smokers in that age group and the new smokers 

who took the place of those smokers who quit. For example, 

if among white males the percentage of 20~24 year olds 

who smoke is 31.6 percent and the percentage of smokers 

in the 25-34 age group is 37.3, then 5.7 percent are new 

smokers. In addition, if the percentage of former smokers 

among the 20-24 age group is 11.5 percent and among the 

25~34 year old age group it is 20.5 percent, an additional 9.0 

percent of whites in the 25~34 year old age group it is 205 

percent, an additional 9.0 percent of white males in the 25~ 

34 year old age group began to smoke. Thus, the total 

increase in smokers among the 25-34 year old white male 

age group from one year to the next can be estimated as 

5.7 plus 9.0 or 14 7 per~ent.8~ If this percentage new 

increase is multiplied by the number of white males who 

were 24 years old the preceding year, a rough estimate of 

the percentage of new smokers in the 25~34 age group can 

be obtained.84 

Table 5, which provides estimates both of the absolute 

number of new smokers in each age, race and sex category 

and of their percentage distribution.85 Based on Table 5 we 

estimate that approximately 2.35 million people in the United 

States will begin smoking in 1986. Almost one million of 

these will be in 17-19 year old age category and appro xi^ 

mately 500 thousand will be between 20 and 24 years old 86 

As a group white males represent Slightly over half of all 

new smokers and white females account for an additional 33 

per~ent.~' 

The results from using this methodology are shown in 

B3Thrs approach assumes that when an age group cohort enters a 

higher age group, the members of thal cohorl wdl immediately 

assume the mean smokmy participation and qurt rales of thair new 

age category Thjs, of course. IS no1 what happens For examDle. rf Ihc 

mean smoking participation rate of while males in the 25~34 age cale~ 

gory IS 323 percent, 32 or 33 percent of those close to 25 years old 

may smoke and 39 or 40 percent of lhose close to 34 years old may 

smoke The simplifyrng assumption lhat we made should have little 

elfecl on lhe overall estimates lhat were developed, however since wc 

are esbmatrng the number of new smokers in a one year time frame 

because it rgnoies mortality Some percentage of smokers will dre Iron! 

disease, acc#denls, etc. Obviousii: some of fhe new smokers fake the 

place of the deceased smokers. Since the vast majority of new 

smokers are 24 years 01 age or under. we do not expect that our esh~ 

mates will be substantially biased by ignoring fhe effects of mortalily 

85The NCHS dala fhat was used lor the distribution of smokers was for 

1986 (NCHS, Health 86, prebmnary) and the Bureau of the Census 

dala was for 1985 Since the new smoker estimates were based on 

lhe numbers of individuals !n a previous age category becoming one 

year older and moving into a new aye group, the cstimales lhat have 

been developed are lor fhis number of new smokers in 1986 The 

number of new smokers in 1987 and succeeding years will be quite 

simrlai Differences dspend on changes !n start ratas and on lhe 

number of people m each age category 

old We have made fhe same simplifying assumption here lhat we 

made earlier re, that there are no regular smokers younger than 

Sevenieen years old. 01 Course we realize that some indrvrduals begiri 

smoking earlrei but again. we do not have sufiic!ent conhdence in the 

existing eSDmales lo use them in our calculabons. The esltmate ol fhe 

number of new smokers would not change very much because all that 

would happen IS that Some of those who are esbmaled lo begin 

smoking at 17 would be esfimated to Start a1 13 lo 16, and the tolal 

number 01 I7 year old smokers would be the same as we have estib 

maied It would be a srmple matter to calculate the number of 13~16 

year old smokers if lhe Technrcal Study Group can agree on that 

percentage (and lo reme our estimates 01 17~19 year old Smokers. 

also) 

BdThs is a conservafwe eslimate of the number 01 new smokers, 

86Acluatly many of these new smokers wrll be less than seventeen years 

BZUnited States Pubic Health Service (1982) p 277 These data are 

based On high school seniors and measured the percent who smoked 

at least one cigarette per day for lhe last lhrrty dap Those who 

dropped our of high school belore the survey was taken were not 

rncluded For more details see Shooland and Brown 1985 

B'Usmy the same methodology we estmated the number of people 

who quit smoking in 1986 at 124 million. As was the case wilh tho 

new smokers. whrte males account for over one~half 01 quitters 

(777,000) while white females represent an addilional 350,000. We 

were no1 able to estimate the number of smokers who die each year 

It IS estimaled fhat 350,000 smokers die from smoking relaled 

diseases, but the number of smokers who die from any cause. eg.. 

accidents, old age, etc.. was not located ti lhese numbers WCE avail^ 

able by age, race and sex, we could develop /abies Nuslrat!nny the 

dynamcs of Ihe smoking population QI terms of new smokers, 

conliriiiing smokers. quitters and smokers who dre arid how lhis pop 

lation is changmg over lime 

145 
Table 5. Estimated Number of New 

Smokers in 1986 

Males Females 

Age White Black White Black 

17 433 64 432 66 

19 238 41 226 21 

24 281 63 91 39 

34 204 18 34 25 

44 58 12 0 0 

65 + 0 0 0 0 

Totals 1215 197 783 151 

__ ____ ~__ 

?rcent Distribution of New Smokers 

Males Females 

__ 

Age ____ 

White Black ____ White Black 

17 18 5% 2 7 184 28 

19 102 17 96 ~~ 09 ~~ 

24 12.0 2.7 3.9 1.7 

34 8.7 0.8 1.5 1.1 

44 2.5 0.5 0.0 0.0 

65 0.0 0.0 0.0 0.0 

Totals 51.8% 8.4% 33.4Vo 6.4% 

Totals 

966 

526 

474 

281 

70 

0 

2347 

Totals 

42.4 

22.4 

20.2 

12.0 

3.0 

00 

100.0% 

Conclusions Regarding the Demographic 

and Socioeconomic Characteristics of the 

Smoking Population, Quitting Smokers and 

New Smokers 

With over 50 million smokers, net changes in the overail 

characteristics of the smoking population will occur slowly, 

since yearly turnover only represents five percent of total 

smokers. Therefore, it can be expected that the total 

smoking population five years from now will look much like 

the current population in terms of age, race and sex. Since 

little is known about the socioeconomic characteristics of 

beginning smokers, it is difficult to draw conclusions about 

variables other than demographics. Were we to hazard a 

guess about this population, our guess would be that new 

smokers who continue to smoke would have similar 

socioeconomic characteristics to current smokers, That is, 

we expect that new smokers who continue to smoke would 

be drawn disproportionately from lower socioeconomic 

groups, while nonsmokers and new smokers who quit 

would be members of higher education, income and occupational status groups. Such a result would be a continua^ 

tion of trends that are already well-established, 
- 

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148 

U.S. GOVERNMENT PRINTING OFFICE : 1987 0 - 193-851 QL 3 

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