Many Countries Have Recently Imposed a Ban on Smoking in Public Areas, Including Restaurants and Bars.

1959 Words Mar 15th, 2014 8 Pages
Many countries have recently imposed a ban on smoking in public areas, including restaurants and bars.

Discuss whether an outright ban is necessarily superior to either a Pigovian or Coasian solution to the externalities created by smoking in public places.

Introduction

Partial smoking bans have become increasingly popular in Western democracies in recent years and tend to revolve around the banning of smoking in public areas. This essay will explore economic arguments and solutions relating to the externalities caused by smoking. The central problem at the heart of this issue is the over-consumption of cigarettes and the problem that the externalities of smoking cause for the general public and therefore this essay will show that
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However, some economists have preferred to replace the notion of externalities with the term “external effects” and this idea refers specifically to the social costs and benefits of either a public or private enterprise rather than focusing upon the effect of externalities from a financial perspective (Thomas 2010: p.62; Sandmo, 1975). Examples of negative externalities include pollution from road transport, litter in public places, noise pollution and externalities related to alcohol and smoking consumption (Stone, 2008). In such situations, what is known as the marginal social benefit of consumption (SMB) is less than the marginal private benefit of consumption (PMB) (Morris et al 2007: p.127). The diagram below illustrates this situation.

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Fig. 2 – SMB < PMB (12Tamito’s Blog, 2013).

This type of situation creates a problem in which a particular good or service can be consumed at a greater level than would optimally be the case (Mankiw 2011: p.199). The consequence of this is that effectively the service or product in question is not priced at the correct level, because it is not priced high enough and the cost of the negative externalities relating to the product or service are not reflected in the price (Pigram & Jenkins 2013: p.172).

Pigovian and Coasian solutions to externalities

The Pigovian approach places the onus upon the generator of the externality (Hartman, 1997). In order to remedy the

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