The U.S. Food and Drug Administration says in a little-noticed
document released alongside its proposals for regulations in April
that the projected benefits of the new rules, which also apply to
cigars, hookahs and other vapor products, should be cut by 70
percent to account for the deprivation consumers would suffer.
That means if the agency puts a value of $100,000 on the longer and
improved life that might be achieved by deterring someone from
smoking, then it would cut that benefit assessment to $30,000
because of the pleasure they lost.
The approach is regarded as radical among those who have done
cost-benefit studies for regulators.
Some public health advocates warn it will help the tobacco industry
argue that the cost of complying with restrictions on new nicotine
products exceeds any benefit to the public, making it easier to
scuttle those rules. They also fear it could be applied more broadly
to regulation of products, such as food and alcoholic beverages,
that is meant to protect public health.
"This makes it a lot harder to justify regulations on cost-benefit
grounds," said Dr Stanton Glantz, a professor of medicine and a
tobacco control expert at the University of California, San
Francisco, who favors tough regulation of e-cigarettes and cigars.
"It will undermine anything they try to do about anything."
Under a 1993 executive order signed by then President Bill Clinton,
U.S. regulators are required to show the benefit of a regulation
would exceed its costs. A proposal that would make a manufacturer
spend $1 billion to avert $100 million in pollution costs, for
instance, would likely not see the light of day.
But with novel tobacco and nicotine products, the FDA is putting its
thumb on the cost-benefit scale in a way no other agency has before,
according to current and former regulators and economists who
specialize in such studies.
In its proposed rules, the FDA has already treaded lightly. It would
ban the sale of e-cigarettes to anyone under 18, but would not
restrict flavored products, online sales or advertising.
The FDA used the same lost-pleasure analysis when it assessed the
costs and benefits of requiring graphic warning labels on tobacco
products - regulations the industry opposes and that have been
blocked by a federal court. That was also little noticed outside a
small group of public health advocates and other policy experts.
In response to questions from Reuters, an FDA spokeswoman said that
even with the inclusion of the lost-pleasure factor, the benefits of
its proposed e-cigarette regulations will still exceed the costs.
She also said the tobacco industry did not pressure the agency to
include it in the analysis, which was conducted by in-house
economists with no input from political appointees.
As to whether using such a large lost-pleasure factor could weaken
regulations, the spokeswoman said, “We will not prejudge any
potential regulatory action.”
FDA economists have previously hinted that the agency should apply
the idea of lost enjoyment in areas beyond tobacco.
In a paper published online this year in the journal Health
Economics, they argued that guilty pleasures like junk food and
alcohol are so enjoyable the benefits of reducing their use through
regulation should be discounted by up to 99 percent.
The authors were FDA economists Clark Nardinelli and Rosemarie
Lavaty, as well as Elizabeth Ashley from the White House Office of
Management and Budget.
The cost-benefit analysis of the FDA’s e-cigarette proposal was
written by the agency’s economics staff, which Nardinelli heads.
Nardinelli and Lavaty declined to comment.
Ashley referred a request for an interview to the OMB press office,
which said in a statement that “the economics profession is still in
the process of determining appropriate data and methods that would
allow for estimation of consumer surplus in the context of tobacco.”
E-cigarette makers are not focusing on FDA’s lost-pleasure
calculation, said Ray Story, chief executive of the Tobacco Vapor
Electronic Cigarette Association, an industry group. Lorillard, the
biggest seller of e-cigarettes in the U.S. with its blu brand, did
not return calls seeking comment. A spokesman for Altria, which owns
Philip Morris USA, did not provide a comment from the company when
contacted on Friday.
A NOVEL FORMULA
John Graham, who headed the White House Office of Information and
Regulatory Affairs, which vets agencies' cost-benefit analyses,
under President George W. Bush, said he could "not recall a specific
instance" during his 2001-to-2006 tenure "where lost enjoyment
played a significant analytical role."
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Loss of pleasure had occasionally been used when analyzing proposals
to ban products, Graham said, but was not treated as a deduction
from benefits, as the FDA is doing.
The U.S. Environmental Protection Agency, for instance, has
incorporated the concept to reflect that people value things like
clean air in ways the market does not always capture, officials
The EPA has also used lost pleasure when calculating the costs of
pesticide regulations to account for the possibility that the price
of apples may rise if growers have to switch to using more expensive
chemicals or lose more of their crop to pests. Consumers would lose
some pleasure if they could afford to buy fewer apples.
In such cases, former officials said, the adjustment was relatively
small, much less than FDA's 70 percent.
WILLING TO PAY MORE
To be sure, the pleasure factor is a well-established concept in
economics, dating back half a century. Known as the "consumer
surplus," it is the difference between what people pay for a product
and the maximum they would be willing to pay.
It may seem counterintuitive that sellers would not charge the
maximum tolerable price. But whatever price they pick, there are
always consumers willing to pay more, explained economist Stan
Veuger of the American Enterprise Institute, a conservative think
tank in Washington, D.C.
The additional amount is the consumer surplus, which economists
interpret as the dollar value of the extra utility, or enjoyment,
users get. Calculating the precise size of the surplus is not
straightforward and economists often debate how large it is, Veuger
said, but he added that the 70 percent used by the FDA "feels
really, really difficult to justify.”
More problematic, he and others argue, is applying the idea of
consumer enjoyment to an addictive product like nicotine. Once a
product becomes addictive, rational consumer choice goes out the
window, said economist Ken Warner of the University of Michigan. The
consumer surplus concept "should never be applied to an addictive
product," he argued.
In addition, nearly three-quarters of smokers say they would like to
quit. Their frustration at their inability to do so means many
experience “incredible levels” of displeasure, said Warner, a
leading cost-benefit scholar. He said that means the concept is not
relevant to the vast majority of tobacco users.
The public has until July 9 to submit comments about the FDA’s
analysis, which the agency could change as a result.
Public health advocates are concerned about what will happen if
agencies charged with protecting consumers also give considerable
weight to the enjoyment people get from all kinds of things that
have been a focus of regulation - from eating food containing trans
fats to riding motorcycles without a helmet.
In the FDA document published online, the staff economists cite a
2002 paper by health economist Jonathan Gruber of MIT as a source
for their 70 percent assessment. After Reuters called the analysis
to his attention, Gruber said the fact that a majority of smokers
pick up the habit as teenagers and become addicted before they are
fully aware of the consequences, meant the FDA was wrong to invoke
the "consumer surplus" concept.
"I think this is really a misapplication of my work," Gruber said.
(Reporting by Sharon Begley; Editing by Michele Gershberg and Martin
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