The Economic Impacts of the Tobacco Settlement

David M. Cutler, Jonathan Gruber, Raymond S. Hartman, M.B. Landrum, J. Newhouse, Meredith B. Rosenthal

NBER Working Paper No. 7760
Issued in June 2000
NBER Program(s):   HC   HE

Recent litigation against major tobacco companies culminated in a Master Settlement Agreement' (MSA) under which the participating companies agreed to compensate most states for Medicaid expenses. We outline the terms of the settlement and analyze whether it was a move toward economic efficiency using data from Massachusetts. Medicaid spending will fall, but only a modest amount ($0.1 billion). The efficiency issue turns mainly on the treatment of health benefits from reduced smoking induced by the settlement. We conclude that the settlement was a move towards economic efficiency.

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Published: Cutler, David M., Jonathan Gruber, Raymond S. Hartman, Mary Beth Landrum, Joseph P. Newhouse, and Meredith B. Rosenthal. "The Economic Impacts of the Tobacco Settlement." Journal of Policy Analysis and Management 21, 1 (Winter 2002): 1-19.

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