Unit 5A: Exercise 5-3 - Law of Diminishing Returns

The Diminishing Returns to Tobacco Legislation
The article, The Diminishing Returns to Tobacco Legislation by Pierre Lemieux, http://www.pierrelemieux.org/artdiminish.html, describes the dimishing returns resulting from government intervention to prevent smoking.

One point of particular merit in the article is that over exposure to health warnings on cigarette packs eventually leave people feeling desensitized. Another example of this can be seen in the rise of violence and crime as people become more desensitized to violence because of films and the internet.

Source: http://www.cdc.gov/pcd/issues/2007/apr/images/06_0024.jpg

In the case of cigarette smoking, diminishing returns were quantified when from 1985 to 1995 the government saw a 52% increase in tax on cigarettes and an 18% decline in smokers; and when from 1995 to 1999 when prices again jumped 48% it yielded only an 11% decline in smokers. This resulted in the increased attempt to cover cigarette packs in alarming images of the negative health effects of smoking.

In Quebec, retail outlets started selling cigarette pack covers to hide the warning messages imposed by government, however, they only had a 1% impact on cigarette sales, which only reinforces the argument that people are indifferent to the panic messages set out by the government.

The statement "health bureaucrats have become addicted to power" lessens the credibility of the article because of the reality and seriousness of the subject matter. Health bureaucrats aren't addicted to power, they are merely fighting to correct a very serious issue that leads to thousands of deaths each year, and it is something that needs to be addressed immediately.

Some suggestions that could lessen the diminishing returns on government intervention to stop smoking would be limiting the production of cigarettes and availability in stores, restaurants, casinos, etc. Also, increasing awareness programs, and developing new ways to raise public awareness of the detriments of smoking.

However, these tactics could have great effects on supply and demand. As stated in the article, as supply or ability to purchase cigarettes decreases (e.g. due to a raise in taxes), some people will conduct illegal activities in order to get their fix; smuggling, theft, etc.  

In terms of sin taxes, the higher the tax imposed on an inelastic product, the higher the revenues.  Since there are no close alternatives to an inelastic product, consumers will still purchase the product and will not be as affected by a change in price. In other words, the government could continue to impose higher and higher taxes on cigarettes, but consumers will still continue to buy or resort some of the tactics listed above in order to get them.