Cigarette smoking is clearly addictive in that current cigarette demand depends on past smoking. The most important policy implication of this is that the long-run impact of a permanent price increase or change in tobacco control policy will grow over time. Economic theory and several recent empirical analyses imply that the price sensitivity of youth cigarette demand is inversely related to age, in part due to the addictive nature of cigarette smoking. Recent estimates indicate that youths are up to three times more sensitive to price than adults, with a 10-percent price increase reducing youth smoking prevalence by up to 7 percent while also reducing cigarette consumption among continuing young smokers. Other tobacco control policies, particularly increased information on the health consequences of smoking, strong restrictions on cigarette smoking in public places and private workplaces, and counteradvertising campaigns, lead to significant reductions in overall cigarette demand and smoking prevalence.
Tobacco products appear to be substitutes for one another.
Increases in the price of cigarettes, for example, have been found to increase the use of other tobacco products, while also reducing cigarette smoking. While much is known from economic research on cigarette demand, there is much more to learn. Advances in econometric methods, more and better data, and increased interdisciplinary research can help to address many of these issues. Existing econometric evidence is based on the small changes in price that occur cross-sectionally and over time. This issue can be partially addressed using more recent U.S., as well as international, data.