The Externalities of Smoking
The key public finance implication of the traditional economics approach is
that the appropriate role for government is solely a function of the externalities
that smokers impose on others. Like all other consumption decisions, smoking is
governed by rational choice. That smokers impose enormous costs on themselves
is irrelevant to public finance; only the costs smokers impose on others
call for government action. Measuring the externalities from smoking is complicated,
however, as we discuss next (and summarize in Table 6-1).