Postprint version. Published in Economic Affairs, Volume 28, Issue 4, December 1, 2008, pages 57-61.
Copyright © 2008 Institute of Economic Affairs. Published by Wiley-Blackwell. The definitive version is available at http://dx.doi.org/10.1111/j.1468-0270.2008.00867.x.
The United Kingdom has recently enacted smoking bans in public places such as restaurants and pubs. Public health advocates argue that bans are necessary because non-smokers need protection from second-hand smoke. Advocates also claim that bans do not exert harm on owners because of a vast empirical literature showing that restaurants and bars in the United States never suffer harm following bans. This paper examines whether these claims are true by developing a model within the Coasian framework whereby owners of businesses have incentives to deal with smoking disputes between smokers and non-smokers. Our model demonstrates that it is incorrect to argue that smoking bans are necessary because the private market has no method of attempting to solve smoking problems. It also predicts that bans exert different effects on different businesses: some will be unaffected while others will experience losses or gains. Our literature review reveals that predictions of differential effects are consistent with the empirical evidence.