Smoking Bans and the Second-Hand Smoking Problem : An Economic Analysis

Smoking bans are gaining widespread support in the European Union and other countries. The vast majority of these bans are partial bans given that smoking is still permitted in certain places. This article investigates the role of partial smoking bans in coping with externalities caused by the second-hand smoking problem. Although it is widely known that Pigouvian taxation is superior to a perfect ban, this result does not necessarily carry over to a \textit{partial} ban because taxes cannot (easily) be differentiated according to location. We show that under an easy and intuitive condition, enacting a partial smoking ban alone always improves social welfare (a) in an unregulated society and (b) even in a regulated society if externalities can be eliminated, and it is ensured that a combination of Pigouvian tax and a partial smoking ban leads to a higher social optimum than implementing corrective Pigouvian taxation alone