Speaking of perverse incentives, there’s a fascinating Washington Times piece today about how large tobacco companies have used court settlements to their advantage and muscled out small businesses:
Critics say the 1998 Master Settlement Agreement has not turned out as expected as big players accused of wrongdoing wound up with market protections while small businesses were forced to pay up….
Under the deal, the big cigarette companies agreed to restrict their marketing, fund stop-smoking efforts and make annual payments to the states for 25 years.
But attorneys on both sides knew the large companies would raise cigarette prices to make their payments, so they built in protections to prevent companies outside the agreement from taking too much market share.
The states that are enforcing these protections argue that yes, maybe it’s sad that smaller tobacco companies are getting squeezed out of the business, but the ultimate effect here is to reduce cigarette consumption. Of course, the counterargument here is that so long as a number of large tobacco companies have unduly large wealth and influence, the prospects for further tobacco regulation will continue to look bleak, both now and in the future. On the other, other hand, regulations on smoking—from advertising restrictions to bans on smoking in bars—seem to be picking up in recent years regardless. Basically, it’s hard to say whether Big Tobacco’s beating a retreat or still charging strong.