Postprint version. Published in Public Choice, Volume 88, Issue 1, August 2, 1994, pages 57-67.
NOTE: At the time of publication, the author Michael L. Marlow was not yet affiliated with Cal Poly.
The definitive version is available at https://doi.org/10.1007/BF00130409.
Smoking bans are gaining widespread support in the United States and other countries. While supporters argue that bans are necessary to resolve market failures associated with negative externalities, the Coase Theorem predicts that, under various conditions, private markets internalize negative externalities. We examine the smoking issue within the framework of the Coase Theorem and hypothesize that smoking bans misallocate air space resources shared by smokers and nonsmokers. Because smoking bans shift ownership of scarce resources, they are also hypothesized to transfer income from one party (smokers) to another party (nonsmokers). Supporting evidence for these hypotheses is provided by an examination of a comprehensive smoking ban imposed in San Luis Obispo, CA.