Wednesday, January 7, 2009

Beeronomics: Complements - Beer and Cigarettes

OK, so I had to find some excuse to post this picture which is all over the Oregon beer-o-sphere. It is Don Younger striking a familiar pose on the last day smoking in bars was allowed in Oregon. How will the ban affect Oregon's bars, pubs and breweries?

Matthew Engle in the Financial Times, writes that beer sales in Britain have declined 10% since the smoking ban was imposed there. Why should this be so? It is certainly true that the two, beer and cigarettes, are complements and so increase the cost of one [smoking is more costly because you have to go outside and do it] and the demand for the other falls.

Will this have as big an effect in Oregon as in Britain? I think it unlikely as most of the ever-so-popular pubs and brewpubs are generally non-smoking establishments anyway. But I do imagine that some small bars could find business down. I guess the bigger question is: given that there are many alternatives to patronizing and working in non-smoking establishments, is the ban necessary? The free market side of me suspects not. But the ban is no so much about this, I assume, as about public health and the cost of caring for smokers later in life. If this ban manages to reduce overall cigarette consumption, then it could easily save the state a lot of money down the road.


BrewCaster said...

Correction: It is DON Younger.
Wonderful shot, it's going on my wall!

Patrick Emerson said...

Yikes, what a blunder! I am fixing it now. Thanks for pointing this out.

Jacob said...

I am skeptical of the cost savings argument. Cigarette smokers do impose health care costs later in life, but by dying earlier they save on other end-of-life health expenses that would occur anyway and additional years of routine medical care. Obviously, they also reduce what the state has to pay in pensions. Given the high taxes on cigarettes, my impression of the research is that smokers pay their own way.

Adding in the revenue that's going to be lost from video poker at bars, Oregon could especially take a large fiscal hit from banning smoking.