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Nov 14 2007 10:45AM EST

The Real Cost of Smoking

If you're a smoker, the pack of Marlboro Reds or Camel Lights you're inhaling might only be around $8, but the cost to your life could be many times more. Actually, about 28 times more.

Every pack of cigarettes that an adult male smokes knocks off $222 from the value of that man's life, estimate W. Kip Viscusi and Joni Hersch of Vanderbilt Law School in a new NBER working paper. For women the results are slightly more muted but sizable at $94 per pack in 2006 dollars. The reason for the discrepancy in costs between men and women is that men earn more than women over their lifetimes and are at greater risk of dying from smoking-related illnesses. The method used by Viscusi and Hersch to calculate the value of life is affected by both of these factors.

(Go here for a roundup of the latest efforts by economists to put a price tag on our lives.)

Viscusi and Hersch's analysis is largely based on the assumption that people place a greater value on living a long life rather than savoring a pack of menthols. If smoking is more important to you than living a long life, then the cost per pack would be greatly reduced.

Previous calculations of the personal economic cost of smoking have been between $20 and $30. The reason for the big difference between Viscusi and Hersch's numbers and the past work is because of different accounting methods. The previous research assumed that the chances of dying only increased at the end of life whereas Viscusi and Hersch assume that smoking-related mortality risk exists -- and increases -- throughout life.

So it seems in order to internalize the damage that smokers are doing to their future selves we'd need to put a further tax on cigarettes on the order of 2675%.

Here are the researchers calculations for the value of life for male and female smokers:

Age Men Women
24 $5.98 million $5.17 million
25-34 $7.32 $6.04
35-44 $8.68 $6.72
45-54 $9.31 $7.00
55-64 $9.17 $6.52

It might be surprising to see that a 55-year-old male smoker is more "valuable" than a 24-year-old male smoker. Doesn't the younger man have most of his life ahead of him?

The trick here is that the above calculations are based on how much someone is willing to pay to reduce their risk of dying. Since a 24-year-old doesn't have the same resources as an older person to invest in risk reduction, that means that, in the world of econometrics, their life is worth less.

UPDATE: Here is my interview with Viscusi on this paper.

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