FDA’s Misguided Concept of “Lost Pleasure” in Tobacco Regulation
by July Tran, 6/25/2014
In April 2014, the Food and Drug Administration (FDA) proposed a rule that would expand the term “tobacco products” to include e-cigarettes, cigars, pipe tobacco, and other novel tobacco products. This rule will allow the FDA to regulate these products under its current authority to regulate tobacco products. As part of the process of federal rulemaking, the costs and benefits of this proposed rule were estimated and considered. Unfortunately, the way FDA went about this was misguided at best.
In the cost-benefit analysis for this proposed rule, the FDA introduced a 70 percent discount to account for the “lost pleasure” that would result from reductions in tobacco use. For example, if the benefits were estimated at $1 billion, they would be reduced by 70 percent to just $300 million, because people “lose pleasure” from smoking less tobacco. The use of such a discount is not only methodologically incorrect when applied to the proposed tobacco rule, but the potential for broader application may undermine future regulations intended to protect public health and safety.
Inappropriate Application of Economic Theory
The idea of this “lost pleasure” discount stems from the economic concept of consumer surplus, which is the difference in price between the maximum amount you would be willing to pay for a product and the actual amount it costs. The extra price you’re willing to pay represents additional benefits, like pleasure, that you gain from the product in addition to having the product itself. This concept assumes people make rational decisions, without influence from other factors. However, evidence from psychological studies and behavioral economics finds that the assumptions of rational choice don’t hold with complex decisions, particularly smoking. Rational choice does not account for a variety of factors that complicate the decision to smoke, such as emotions and misperceptions.
Applying the concept of consumer surplus and the “lost pleasure” discount in the case of tobacco is especially inappropriate because tobacco contains nicotine, a highly addictive substance. In addition, almost all tobacco use begins during adolescence, when nicotine has even more significant effects on the smoker’s addiction and brain development. The FDA’s draft rule summarizes the scientific evidence of nicotine addictiveness and subsequent irrationality, especially for youth. Health economist Jonathan Gruber of MIT, whose work the FDA cited as support for their 70 percent reduction in benefits, stated, “I think this is really a misapplication of my work.”
Threat to Public Health
Applying a “lost pleasure” discount to a harmful, addictive substance such as nicotine sets a dangerous precedent, particularly for public health regulations. A substantial body of scientific literature documents the extensive health risks from tobacco, alcohol, and junk food, especially to those who are addicted to these products. FDA’s inappropriate and misguided use of this economic theory has the potential to undermine important policies that improve public health. The concept of severely discounting the benefits due to “lost pleasure” could even be applied to behaviors that are pleasurable to some, like speeding, but threaten public health and safety.
Under the application of a “lost pleasure” discount, the more effective a rule is in reducing harm, the greater the discount applied since more pleasure is “lost.” Such a practice would severely slash the benefits of the most effective rules. Cost-benefit analysis methodology already suffers from several flaws, such as the difficulty of quantifying and monetizing benefits like lives saved, diseases prevented, and environmental protection. The practice tends to overestimate costs and underestimate benefits, and the additional use of a “lost pleasure” discount significantly increases this misrepresentation of actual costs and benefits. Where appropriate, “lost pleasure” can be accounted for while still preserving massive benefits to public health.
Applying a theoretical economic concept of lost consumer pleasure as the rationale for discounting the public health benefits from protecting Americans from harmful, addictive substances like tobacco is inappropriate and sets a dangerous precedent that threatens to derail policies intended to safeguard the public.
The public comment period for this proposed rule ends on Aug 8, 2014.