A STUDY ON LIABILITY AND THE HEALTH COSTS OF SMOKING DG SANCO (2008/C6/046) FINAL REPORT December 2009 A Study on Liability and the Health Costs of Smoking SANCO/2008/C6/046 This is the final report for a study on liability and the health costs of smoking commissioned by DG SANCO of the European Commission under contract ref SANCO 2008/C6/046. This study was undertaken by the following: Andrew Jarvis (Project Director) Máté Péter Vincze (Project Manager) Beth Falconer (Lead Researcher) Amandine Garde (Lead, Legal Team) Frederic Geber (Researcher, Legal Team) Richard Daynard (Expert advisor, Legal Team) Document Control Document Title A study on liability and the health costs of smoking: Final Report Job No. 30256134 Prepared by Andrew Jarvis, Máté Péter Vincze, Beth Falconer, Amandine Garde, Frederic Geber Checked by Andrew Jarvis Date 1 December 2009 30256134 A Study on Liability and the Health Costs of Smoking SANCO/2008/C6/046 30256134 A study on liability and the health costs of smoking DG SANCO DG SANCO (2008/C6/046) A report submitted by GHK in association with University of Exeter, UK and the Public Health Advocacy Institute, USA Date: December 2009 526 Fulham Road, London SW6 5NR Tel: 020 7471 8000; Fax: 020 7736 0784 www.ghkint.com A study on liability and the health costs of smoking Final Report 30256134 A study on liability and the health costs of smoking Final Report CONTENTS EXECUTIVE SUMMARY .........................................................................................................................I E.1 This study........................................................................................................................................ i E.2 Estimating the costs of smoking to EU society (Chapter 2) ........................................................... i E.3 Policy tools for tackling externalities (Chapter 3) ......................................................................... iv E.4 The role of litigation – past experience and future potential (Chapter 4) ...................................... v E.5 Beyond litigation: alternative ways and means (Chapter 5) ......................................................... xi E.6 Final remarks (Chapter 6)............................................................................................................xiii 1 INTRODUCTION...............................................................................................................................1 1.1 The purpose of the project .............................................................................................................1 1.2 Approach and acknowledgements.................................................................................................1 1.3 Structure of this report....................................................................................................................2 2 THE EXTERNAL COSTS OF SMOKING IN EUROPE....................................................................3 2.1 Introduction ....................................................................................................................................3 2.2 Smoking as a negative externality .................................................................................................3 2.3 Previous estimates of the cost of smoking.....................................................................................5 2.4 The costing method used here ......................................................................................................7 2.5 Medical conditions caused by smoking..........................................................................................9 2.6 Model results for the costs of smoking.........................................................................................12 2.6.1 The cost to EU public healthcare systems................................................................................12 2.6.2 Costs of productivity losses to the economy due to smoking attributable absenteeism and retirement ..................................................................................................................................15 2.6.3 Monetised cost of premature mortality......................................................................................20 2.6.4 Chapter summary......................................................................................................................22 3 POLICY TOOLS FOR TACKLING EXTERNALITIES ...................................................................24 3.1 Introduction ..................................................................................................................................24 3.2 Regulation ....................................................................................................................................24 3.3 Legal liability.................................................................................................................................25 3.4 Pigouvian taxes............................................................................................................................26 3.5 The Coase theorem .....................................................................................................................27 3.6 Internalising externalities versus recovering costs ......................................................................28 4 THE ROLE OF LITIGATION – PAST EXPERIENCE AND FUTURE POTENTIAL ......................30 4.1 Introduction ..................................................................................................................................30 4.2 The potential benefits of tobacco litigation...................................................................................30 4.3 Methodology.................................................................................................................................31 4.4 The development of tobacco litigation – from a US to a worldwide phenomenon.......................32 4.4.1 First and second waves of US cases........................................................................................32 4.4.2 Third wave of US cases ............................................................................................................33 4.4.3 Tobacco litigation as part of the tobacco control strategies......................................................36 4.4.4 Tobacco litigation in the European Union .................................................................................36 4.5 Trends observed in cases delivered by courts in Europe............................................................37 4.5.1 The standard of liability of tobacco manufacturers ...................................................................37 30256134 A study on liability and the health costs of smoking Final Report 4.5.2 Causation ..................................................................................................................................47 4.5.3 Possible changes to the existing Community legislative framework likely to facilitate tobacco litigation .....................................................................................................................................50 4.6 Procedures likely to facilitate tobacco litigation ...........................................................................51 4.6.1 The cost of bringing a case.......................................................................................................51 4.6.2 The time required to gather evidence .......................................................................................56 4.6.3 Tobacco litigation and Community competence .......................................................................59 5 BEYOND LITIGATION: ALTERNATIVE WAYS AND MEANS.....................................................60 5.1 Introduction ..................................................................................................................................60 5.2 Taxation........................................................................................................................................60 5.2.1 The principle..............................................................................................................................60 5.2.2 The hypothetical case of a Pigouvian tax on sale of tobacco products ....................................60 5.2.3 In summary ...............................................................................................................................63 5.3 Tradable permits ..........................................................................................................................64 5.3.1 The principle..............................................................................................................................64 5.4 Levies and cost recovery mechanisms ........................................................................................67 5.4.1 The hypothetical case of a levy or licence to recover additional health care costs attributable to smoking.....................................................................................................................................67 5.5 Regulation ....................................................................................................................................68 5.6 Other issues .................................................................................................................................69