January 14, 2008
Series Editor: Ian Parry
Managing Editor: Felicia Day
Assistant Editors: John Anderson and Adrienne Foerster
Welcome to the RFF Weekly Policy Commentary, which is meant to provide an easy way to learn about important policy issues related to environmental, natural resource, energy, urban, and public health problems.
Although progress has been made, smoking still remains a leading cause of death in the United States. Most economic research has focused on the effectiveness, and desirability, of higher cigarette taxes, smoking bans, and public health campaigns. However, this week’s commentary by Donald Kenkel and Dean Lillard, two leading experts on substance abuse policy, discusses another factor that can encourage people to quit smoking, namely advertisements for smoking cessation products. They also discuss implications for public policy regarding such advertising.
Next week’s commentary by John Anderson will discuss FutureGen, a demonstration project designed to successfully capture the carbon dioxide emission produced from a coal gasification power plant, with the emissions safely stored underground.
How Advertising for Smoking-Cessation Products Can Help Meet Public Health Goals
Donald S. Kenkel and Dean R. Lillard
About 20 percent of the U.S. adult population currently smokes cigarettes, and over 400,000 Americans die each year from smoking-related illnesses. Given these stark numbers, it is easy to understand why an ongoing federal public health initiative aims to cut the smoking rate almost in half by 2010. Over the past decade or so, preventing youth from starting to smoke attracted a great deal of media and policy attention. Taxes were raised, anti-smoking mass media campaigns were launched, and laws restricting the sale of cigarettes to minors were strengthened and enforced.
While it is difficult to know which, if any, of these policies worked, the rate of daily smoking among high school seniors indeed dropped by half from the peak levels reached in the late 1990s. But the remaining gap between the current adult smoking rate and the new goal makes clear what experts have long recognized: large reductions in the smoking rate cannot be achieved unless more of the 45 million adults who currently smoke, quit. And as one of the required cigarette warning labels reads: “Quitting smoking now greatly reduces serious risks to your health.”
Thinking about smoking cessation as a public health problem naturally focuses attention on public policies such as further cigarette tax hikes, smoking bans, and stronger warning labels. However, it is also a private health issue – the smokers themselves have the most to gain from quitting. There is a healthy private-sector market for products such as nicotine gum that help smokers quit. The pharmaceutical industry’s estimated retail sales of smoking cessation products are nearly $1 billion annually. In recent years, the industry has spent between $100 to $200 million annually advertising these products. While the pharmaceutical industry is out for higher profits, does the advertising also improve public health? If so, what public policies might encourage more private sector advertising?
To shed new light on this question, we studied whether pharmaceutical industry advertising affected smokers’ decisions to quit. We linked survey data from individual smokers with an archive of magazine advertisements. With data on these smokers’ magazine reading habits, we measured the smoking cessation ads to which they were exposed. By using the same information about the consumers that the advertisers observe, we tried to control for the potential reverse causality that advertising studies commonly face: are consumers responding to the advertising, or are advertisers responding to the consumer behavior?
After subjecting our results to a battery of checks, we found evidence that, when smokers see more magazine ads for smoking cessation products, they are more likely to decide to quit. Based on our results, we estimate that if the smoking-cessation product industry increases its average annual expenditures on magazine advertising by about $2.6 million, the average smoker would be exposed to about 2.1 more magazine ads each year. According to our empirical models, the result would be about 225,000 new attempts to quit and 80,000 successful “quits” each year. If an increase of this size in the rate of smoking cessation could be maintained over the years, the adult smoking rate would drop by about a percentage point. Larger increases in advertising budgets could reduce smoking rates by even more. Our study of smoking-cessation product advertising is part of a growing body of economic research finding that direct-to-consumer ads increase consumer demand for a variety of pharmaceutical products.
Interestingly, however, our estimates show that most of the new quit attempts and quits spurred by the ads would not involve the purchase of smoking cessation products. Other studies find that when smokers attempt to quit, at least two-thirds use a method like going “cold turkey” that does not involve a product purchase. Likewise, our estimates suggest that about two-thirds of smokers who were prompted to quit by the product ads will also go cold turkey.
Firms often worry that their ad expenditures will spill over and help their competitors: does a McDonald’s ad prompt a visit to the Golden Arches, or might it help Burger King too? But for smoking-cessation products, the direct competition doesn’t cost anything. Because advertising can spur people to quit on their own, some of the public health returns to smoking-cessation product ads are not captured as private profits.
Donald S. Kenkel
Professor, Cornell University
Kenkel received his Ph.D. in Economics from the University of Chicago. His expertise is in areas of health economics and public sector economics. Most of his research is on the economics of disease prevention and health promotion.
Senior Research Associate, Cornell University
Lillard received his Ph.D. in Economics from the University of Chicago. His current research focuses on the economics of smoking, the economics of advertising, empirical methods for analysis of retrospective data, and the economics of education.
The standard policy prescription is to use subsidies to encourage private-sector activities that generate positive spillovers. For example, the public sector subsidizes education because schooling not only helps the recipients but presumably benefits the rest of society. However, instead of subsidizing pharmaceutical ads because of their spillovers, current regulatory policy works to discourage them. The United States and New Zealand are the only countries that allow direct-to-consumer advertising of prescription pharmaceutical products. Even in these two countries, these ads are strictly regulated.
In the United States, this had led to an ironic situation: in some ways, ads for prescription pharmaceutical products for smoking cessation have been more heavily regulated than cigarette ads. Food and Drug Administration (FDA) regulations require magazine ads for prescription smoking-cessation products to include at least an extra page of disclosures about side effects and contra-indications, while cigarette ads are only required to carry a short warning label. Easing regulations on ads for smoking cessation products could exploit more fully the profit incentives to promote public health. Ads for other pharmaceutical products, such as statins to treat high cholesterol, have similar potential. Because the potential gains and harms from advertising vary widely across products, it might make sense for the FDA to adopt a more flexible approach to regulating direct-to-consumer advertising.
More generally, when crafting public policy it is important to acknowledge private incentives to improve public health. People want to live healthier and longer lives, and private-sector firms can earn profits helping them do so. Public policies should be structured to facilitate, rather than impede, the public health gains enjoyed when firms pursue private profits.
Views expressed are those of the author. RFF does not take institutional positions on legislative or policy questions.
To receive the Weekly Policy Commentary by email, or to submit comments and feedback,
Avery, Rosemary, Donald Kenkel, Dean Lillard, and Alan Mathios. 2007. “Private Profits and Public Health: Does Advertising of Smoking Cessation Products Encourage Smokers to Quit?” Journal of Political Economy 115 (3): 447-481.
Avery, Rosemary, Donald Kenkel, Dean Lillard, and Alan Mathios. 2007. “Regulating Advertisements: The Case of Smoking Cessation Products.” Journal of Regulatory Economics 31: 185-208.
Chaloupka, Frank and Kenneth Warner. 2000. "The Economics of Smoking." Handbook of Health Economics, Joseph Newhouse and Anthony Culyer, Editors. (North-Holland)