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On Balance: Recent Developments in the Market for Vaping Products and the Implications for Benefit-Cost Analysis

October 7, 2020
By: Don Kenkel

Since electronic cigarettes were introduced, in 2007, they have presented controversial public health tradeoffs. E-cigarettes provide users with the addictive chemical nicotine but without exposing them to the harmful combustion-generated toxicants in cigarette smoke. On the one hand, because smoking combustible cigarettes is estimated to lead to almost 500,000 deaths each year, e-cigarettes have great potential as a harm reduction strategy. In particular, evidence from randomized clinical trials shows that vaping e-cigarettes helps adult smokers quit. On the other hand, the growing popularity of vaping among teens raises concerns about nicotine addiction, the possibility that vaping is a gateway to smoking, and unknown future health consequences. More teens now vape e-cigarettes than smoke cigarettes. In the National Youth Tobacco Survey, the fraction of high school students reporting vaping within the past 30 days increased from 11.7 percent in 2017 to 27.5 percent in 2019, before dropping to 19.6 percent in 2020.  Some public policies – increasing the legal purchase to 21 and banning e-cigarette flavors popular with teens – try to target teen vaping. Other policies, most notably e-cigarette excise taxes, discourage both adult and teen vaping.
In August 2020, I chaired an SBCA-sponsored webinar on recent developments in the vaping market and the implications for public policy and benefit-cost analysis. The webinar included four research presentations originally planned for the March 2020 in-person SBCA conference. Although the COVID outbreak interfered with those (and many other!) plans, we were pleased to have the webinar opportunity.  The SBCA is currently sponsoring an Online Workshop Series.

In the first presentation, my Cornell University colleague Alan Mathios discussed research into the impact of another recent health outbreak – the 2019 outbreak of what the CDC termed e-cigarette, or vaping, associated lung injuries (EVALI).  The EVALI outbreak was eventually linked to illegal e-cigarettes that contained THC (the psychoactive component of marijuana) and Vitamin E acetate, not commercially manufactured nicotine e-cigarettes. However, Professor Mathios and his colleagues found that after the EVALI outbreak, more consumers perceived all e-cigarettes to be riskier than combustible cigarettes. In data from a cross-sectional survey conducted after the EVALI outbreak, consumers who perceived e-cigarettes to be riskier were less likely to have quit smoking in the past year. Mathios and his colleagues put the results together to make preliminary calculations of the impact on smoking cessation and health. Using standard estimates of the health benefits of quitting and the value of health, the indirect health cost of the EVALI outbreak through reduced smoking cessation greatly exceeded the direct health cost.

 The second presentation was by Professor W. Kip Viscusi of Vanderbilt University. Professor Viscusi reported results from his latest study in a long-standing research agenda on tobacco and risk perceptions. Since his last survey about e-cigarette risks in 2014, by the time of his 2019 survey, e-cigarette use had become more common and the EVALI outbreak had led to hospitalizations and deaths associated with vaping.  Professor Viscusi proposes a Bayesian model of risk perceptions, where consumers use their perceived risk of combustible cigarettes as their Bayesian priors about the risk of e-cigarettes. Consumers update their beliefs when they receive new information, such as the EVALI outbreak (although having seen news about the EVALI outbreak was not statistically significant in his empirical model). Professor Viscusi finds that since 2014, the fraction of consumers who perceive e-cigarettes as riskier than combustibles increased by 11%. His empirical results also suggest that e-cigarette use shows predictable associations with risk perceptions and perceptions about nicotine.

In the third presentation, Professor Michael Pesko of Georgi State University presented his research into the impacts of e-cigarette taxes. Starting in 2015, 22 States, D.C., and several other localities have enacted e-cigarette taxes. On a standardized basis of tax per milliliter of fluid, in 2017 the tax on e-cigarettes ranged from $0.05 to $1.85. Professor Pesko and his colleagues use retailer scanner data on e-cigarette and cigarette sales from 2011 through 2017. They estimate that each $1 tax on the fluid contained in an e-cigarette leads the price of the e-cigarette price to increase by almost $1.50. The high rate of tax pass-through to prices is consistent with -evidence that the e-cigarette market is concentrated among a few sellers. Professor Pesko and his colleagues then turned to the impact of taxes on sales. They estimate that e-cigarette sales are price-elastic; a $1 price increase is estimated to reduce the sales of flavored e-cigarettes (popular among teens) by 41%. The results suggest that a potentially strong policy tool to reduce teen vaping. However, other empirical results suggest that e-cigarettes and cigarettes are substitutes; a 10% increase in the price of e-cigarettes is estimated to increase combustible cigarette sales by 8%.  Professor Pesko’s research provides quantified estimates of the policy tradeoffs where e-cigarette taxes can decrease teen vaping but increase adult smoking.  

The fourth presentation was by Dr. Ayda Yurekli of the Foundation for a Smoke-Free World. While the previous presentations focused on the newest vaping tobacco products, Dr. Yurekli presented research about a much older product – roll-your-own cigarettes. Because roll-your-own tobacco is typically taxed at a low rate, smokers of roll-your-own cigarettes avoid the much higher taxes on commercially made cigarettes. Dr. Yurekli used data on U.S. smokers collected as part of a 7-country survey conducted in 2019. She estimated empirical models that explored the characteristics of smokers who use roll-your-own cigarettes only, commercially made cigarettes only, or who were dual users of both types of combustible cigarettes. In addition to demographic differences, the empirical results suggest that smokers who were the least impatient, i.e. a relatively low rate of time preference, were less likely to use roll-your-own cigarettes. Another interesting pattern is that smokers who believed that e-cigarettes are more harmful than combustible cigarettes were more likely to use roll-your-own cigarettes.

By the end of the webinar, the audience and I were thinking about a number of intriguing implications for benefit-cost analysis of vaping policies. As a member of the audience put it, “The benefit-cost analyses of events, actions and policies is exciting. So many possibilities, so many possible pathways.” Benefit-cost analysis provides a clear framework for thinking about the tradeoffs between tobacco harm reduction for current smokers versus potential new risks for teen vapers. The research presented during the webinar begins to quantify gaps in consumer information about the relative risks of smoking and vaping, as well as the impact of policies like e-cigarette taxes. 

Don is the Joan K. and Irwin M. Jacobs Professor of  Policy Analysis and Management at Cornell University
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