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 efforts to curb total level of cigarette consumption can be approached from a variety of different perspective (see graph below). The essay will begin by discussing the economics of externalities before moving on to examine Pigovian and Coasian theoretical frameworks. The final section of the essay will apply these frameworks and will show that on balance a Pigovian tax in conjunction with a partial ban is the socially optimum solution. For the purposes of this essay an outright ban will refer to a total ban of cigarette consumption in society.

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Fig. 1 – Negative Consumption Externalities (Tutor2u, 2013).

The economics of externalities

The notion of externalities is not straightforward to define and Vanhove argues that externalities is one of the “vaguest and most ambiguous terms in economic science” (Vanhove 2011: p.285, Papandreou, 1998). In general, however, there is a consensus in economic circles that externalities refer to an effect that either production or consumption has upon third parties (Koundouri, 2003; Sexton, 2011). In particular, externalities denote the by-product of production or consumption for which there