As interest grows in regulating addictive behavior, we have seen increased taxation, increased regulation of public consumption, and a rash of litigation against the cigarette industry. Using standard values for average age and life expectancy, Gruber and Koszegi estimate that an extra year at the end of a worker's life is worth almost $100,000. Since the typical smoker dies 6. l years prematurely, the cost of smoking a pack of cigarettes in terms of life-years lost is $30.45. Thus, the internal costs are over 100 times the external costs. Policy conclusions based on their research are a signif icant departure from those based on the earlier model. Even if the government considers only a small portion of the internal costs in establishing tax policy, a strong case could be made for a substantial increase in the current average excise tax of 65 cents per pack. Even if the external costs are also considered second-hand smoke estimated at 19 to 70 cents per pack and the long-run costs of low birthweight due to maternal smoking estimated at 42 to 70 cents per pack the internal costs still dwarf the calculation. This line of research has important implications for other forms of addictive behavior, in particular illegal drugs.