Theodore E. Keeler

Reducing cigarette consumption in California: tobacco taxes vs an anti-smoking media campaign.

OBJECTIVES The purpose of this study was to examine the relative effects of taxation vs an anti-smoking media campaign on cigarette consumption in California. METHODS Quarterly cigarette sales data reported by the California State Board of Equalization between 1980 and 1992 were used to estimate a time-series model, adjusted for seasonal variations and time trends. RESULTS The estimated results show that sales of cigarettes were reduced by 819 million packs from the third quarter of 1990 through the fourth quarter of 1992 owing to an additional 25-cent state tax increase, while the anti-smoking media campaign reduced the cigarette sales by 232 million packs during the same period. CONCLUSIONS Both taxation and anti-smoking media campaigns are effective means of reducing cigarette consumption. The strength of those effects, however, is influenced by the magnitude of the taxes and the amount of media campaign expenditures.

Taxation, regulation, and addiction: A demand function for cigarettes based on time-series evidence

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.

Railroad Costs, Returns to Scale, and Excess Capacity

In this study, a model is developed for estimating two types of potential scale economies in the railroad industry: returns to traffic density and returns to firm size. The model is developed by making short-runs a function of both traffic and plant investment (trackage), and is then estimated over a cross section of railroads. A long-run cost envelope is derived from the estimated short-run relationship. Results indicate substantial unexploited economies of traffic density for most railroads, but constant long-run returns to scale. These findings imply that much can be done, possibly including track abandonment, to achieve a market solution to the financial problems faced by the railroad industry.

Do cigarette producers price-discriminate by state? An empirical analysis of local cigarette pricing and taxation.

This study analyzes the interactive effects of oligopoly pricing, state taxation, and anti-smoking regulations on retail cigarette prices by state, using panel data for the 50 US states between 1960 and 1990. The results indicate that cigarette producers do price-discriminate by state, though the effect is not large relative to the final retail price. There are two further results: (1) state taxes are more than passed on - a 1-cent state tax increase results in a price increase of 1.11 cents, and (2) sellers offset state and local anti-smoking laws with lower prices, thereby blunting effects of the regulations.

Oligopoly structure and the incidence of cigarette excise taxes

The economic incidence of cigarette excise taxes in the United States is estimated for 1955-1989. The analysis simultaneously considers consumer demand and the reactions of manufacturers and the distribution industry, and contrasts the incidence of federal with state and local taxes. A cost function was estimated, and found that cigarette manufacture is subject to increasing returns to scale. The model of the market found a mean price elasticity of demand of -1.08. Price elasticity has been decreasing. The elimination of simultaneity bias may explain why this estimate is higher than that of other studies. The industry was found to be less competitive than a Cournot industry. Competition among manufacturers has decreased substantially since 1980. This may be because manufacturers have become less concerned about anti-trust scrutiny or the prospect of new competitors. A simulation shows that an increase in the federal excise tax causes a greater increase in price, and a greater decrease in consumption, than does the same increase in the average of state and local tax rates. This is consistent with the view that in the face of an increase in a state or local tax, some demand shifts to neighboring jurisdictions with lower taxes.

Airline Regulation and Market Performance

In order to determine the effects of domestic airline regulation on the fares and market efficiency of the American air transport industry, it is necessary to know what fares would be if air travel markets were unregulated. To answer this question, a long-run airline cost model is developed and estimated, and it is used to predict hypothetical unregulated (or cost-based) fares for 30 major domestic air travel markets. As a test, the model is used to predict fares on the relatively unregulated California intrastate routes, which it does quite accurately, though the number of such routes observed is small. The results of the study indicate that as of 1968, regulated routes had markups over the estimated unregulated fare ranging from 20 to 95 percent, with a distinct tendency for markups to rise with distance. Crudely updated to 1972, the results indicate current markups of 48 to 84 percent, with less correlation between markup and distance.

Hospital Costs and Excess Bed Capacity: A Statistical Analysis

The present paper develops and estimates a cost model for U.S. hospitals which enables us to analyze the cost of excess bed capacity. A new estimate is worth making for at least two reasons. First, recent changes in the economic environment in which hospitals operate has caused their utilization rates in the U.S. to fall sharply over the past decade, making previous estimates inaccurate. Second, the present paper employs econometric techniques of cost estimation not previously applied to this problem, with estimation based on all U.S. short-term community hospitals from 1979 through 1989. Our results, based on conservative estimates of the average optimal occupancy rate, indicate an annual cost of excess bed capacity (in current dollars) of

Measuring the benefits of a large public investment: The case of the U.S. Federal-aid highway system

13.2 billion in 1989,

Theories of regulation and the deregulation movement

18.4 billion in 1991, and over

DEREGULATION AND SCALE ECONOMIES IN THE U.S. TRUCKING INDUSTRY : AN ECONOMETRIC EXTENSION OF THE SURVIVOR PRINCIPLE

20 billion in 1993.