Tobacco Regulation through Litigation: The Master Settlement Agreement
The 1998 Master Settlement Agreement resolved the unprecedented litigation in which the states sought to recoup the cigarette-related Medicaid costs. The litigation was settled through a combination of negotiated regulatory requirements and financial payments of about $250 billion over 25 years. Settlement payments received by states are strongly related to smoking-related medical costs but are also related to political factors. The payments largely took the form of an excise tax equivalent, raising potential antitrust concerns. The regulatory restrictions imposed by the agreement also raised antitrust concerns. However, there has been no evident shift in industry concentration. The increase in advertising and marketing expenses has largely taken the form of price discounts. The settlement sidestepped the usual procedures pertaining to the imposition of taxes and the promulgation of new regulations.
This paper was presented at the NBER Regulation Versus Litigation Conference, Sept. 11-12, 2009. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Tobacco Regulation through Litigation: The Master Settlement Agreement, W. Kip Viscusi, Joni Hersch. in Regulation vs. Litigation: Perspectives from Economics and Law, Kessler. 2011