Cigarette Advertising and U.S. Cigarette Demand: A Policy Assessment

Abstract

The effect of advertising on cigarette demand has been widely studied. Yet the demand-advertising nexus is not completely understood and there is little consensus in the literature. This paper sheds new light on the issue by examining the relationship using state-level data for the United States over three decades. Additional contributions include examining the effects of the Master Settlement Agreement, and studying the dynamic effects of advertising and smoking. Findings show that U.S. cigarette demand is inelastic, the income effects are mixed, advertising elasticities are relatively small, post-MSA advertising seems smoking-reducing and that the full effects of the MSA are probably still unfolding. Smoking habits tend to linger, while the effects of antismoking messages accompanying cigarette advertisements take time to be effective. Policy implications are discussed.