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A new study by a U of O professor details how to use economic incentives to reduce market share of cigarettes. Photo: Kim Wiens.

Research looks at role of economic incentives in decreasing smoking rates

A new study co-authored by a University of Ottawa researcher is advocating for the use of economic incentives to decrease smoking rates in Canada.

David Sweanor, professor at the Faculty of Law at the University of Ottawa, and Dr. Rob Branston, Deputy Director of the Centre for Governance & Regulation in the University of Bath’s School of Management published their  study, Big Tobacco, E-cigarettes and a road to the smoking endgame  on Feb. 16.

“Cigarette smoking is killing so many people, it’s entirely unnecessary because you could deliver nicotine—the primary reason people smoke—in ways that are massively less hazardous,” said Sweanor.

According to the Canadian Cancer Society, around 37,000 people die each year in Canada from smoking tobacco, and smoking is estimated to be responsible for 30 per cent of cancer deaths, and related to 85 per cent of lung cancer cases.

Sweanor isn’t proposing stopping people from consuming nicotine, but changing the delivery system. “What kills people is the smoke, it isn’t the nicotine in the dosage levels smokers are looking for,” he said.

Sweanor and Branston say the answer is economic incentives.

This concept shouldn’t be new to  Canadians, where cigarettes are taxed heavily to raise the price and discourage consumers, especially young buyers. According to the non-profit Non Smokers Rights Association, the pre-tax price for a carton of 200 cigarettes in Ontario is $33.90, but after taxes are applied—including $59.75 in tobacco-specific taxes—the total price of the carton is $93.66.

But taxing can have unintended consequences, according to Sweanor and Branston.

The more governments tax cigarettes, the higher the price gets, and a smaller and smaller percentage of the price consumers pay is made up of what the tobacco company charges.

What that means, Sweanor said, is that when taxes are high, the consumers who are still buying cigarettes will see a relatively small increase in the overall price when tobacco companies increase their price, because the tobacco companies price is a small slice of the overall price once taxes are added.

In essence, he said, at a certain point high taxes on cigarettes make it easier for tobacco companies to raise prices without consumers minding. “It’s really become a licence to print money.”

This can help the companies offset the loss in customers brought on by the tax increase. Sweanor says while using taxes to cut into tobacco companies’ consumer base is helpful, governments need to do more to prevent the companies from making money.

“It’s very hard for anyone else to sell nicotine products,” he said. “Smokers really have no alternative.”

“They keep increasing prices, and since people have nowhere else to go, the vast majority of smokers will pay those slowly increasing prices,” he said.

The answer to this problem, according to the study, is competition. Sweanor suggests that the government encourages substitutes—other goods that consumers will buy in place of cigarettes—to compete with them and drive down prices. A promising  substitute the pair suggests is e-cigarettes.

Sweanor said the government can encourage this competitive force by regulating competing products less, subsidizing new technologies, and providing people with better information about alternatives to cigarettes.

“Our recommendation is that we need to do something to do things that erode the profitability of making cigarettes,” said Sweanor, “but also create an incentive for companies to move to far less hazardous products.”