This work analyzes the effects of prices, taxes, income, and anti-smoking regulations on the consumption of cigarettes in California (a 25-cent-per-pack state tax increase in 1989 enhances the usefulness of this exercise). Analysis is based on monthly time-series data for 1980 through 1990. Results show a price elasticity of demand for cigarettes in the short run of -0.3 to -0.5 at mean data values, and -0.5 to -0.6 in the long run. We find at least some support for two further hypotheses: that antismoking regulations reduce cigarette consumption, and that consumers behave consistently with the model of rational addiction.

Abstract

Although economic research has not yet produced accurate estimates of the total cost of prenatal substance exposure, there is growing evidence that this exposure may result in large short-term expenditures for newborn medical intensive care and probably even larger long-term medical, social, and educational expenditures. The annual short-term economic costs due to maternal smoking are estimated to be from $332 million to $652 million (in 1986 dollars). Long-term costs due to maternal smoking are estimated at $351 million to $852 million (in 1986 dollars) per year. In comparison, the short-term economic costs for perinatal cocaine exposure are estimated at $33 million to $650 million (in 1989 dollars). The cost estimates for cocaine vary widely because accurate estimates of the number of infants born exposed to this drug each year are not available.

Programs aimed at reducing the number of women who use drugs during pregnancy, and thus reducing the overall rate of low birth weight and the need for neonatal intensive care, may be extremely cost-effective. Because of the high cost of neonatal intensive care, even moderately effective programs that address maternal substance abuse may be cost-effective and may rapidly yield savings. Substantial long-term costs may also be saved by avoiding the need for subsequent medical care and for social and special education services that may be consequences of prenatal substance exposure.