Coffee, Cocktails and Commentary

What a surprise for me to wake up to this morning: Other bloggers are writing about smoking bans! Marc Ambinder got the ball rolling, but Megan McArdle’s post is of the most interest:

[The lack of smokefree bars] seems like a market failure. You can explain it through preference asymmetry and the profitability of various customer classes: heavy drinkers are more likely to also be heavy smokers, and they are the most profitable customers. Bar owners don’t want big groups of people who are going to take up three tables for an hour and a half while nursing one white wine spritzer apiece. They want people who are there to drink. In a competitive equilibrium, they couldn’t afford to go non-smoking because they’d lose their most profitable customers to all the other bars.

You can explain it, but this doesn’t seem like a good market outcome by any measure. Let me be clear, I’m still against the smoking ban, even though I personally vastly prefer smoke-free environments; I think interfering with property rights like this has even heavier costs. But I also recognize that I’m in a minority. And I think that politically, if not intellectually, the success of smoking bans is a heavy blow to libertarian credibility.

It’s true that in pre-ban cities it could be frustratingly difficult to find good smokefree bars, but I wouldn’t go so far as to say this is a blow to libertarian credibility. For several reasons the market failure Megan describes is somewhat illusory.

First, trends toward smokefree businesses were already in place in many jurisdictions before their smoking bans took effect, especially in areas that were late to pass them. Smokefree DC’s website listed more than 200 non-smoking, non-fast food restaurants in the city limits prior to DC’s ban. My tally from a similar list here in Oregon showed more than 400 smokefree bars and restaurants in Portland in December 2008, one month before our statewide ban took effect. During recent debate about Virginia’s upcoming ban the Virginia Hospitality and Travel Association reported that 67% of restaurants were already voluntarily smokefree, a number that included many nightlife spots. Markets are providing smokefree options, just not with the immediacy and completeness that health activists prefer.

Another limiting factor is that it’s hard to measure actual smoking preferences solely by the popular support of smoking bans. There is no cost for a non-smoker to loudly proclaim a preference for smokefree environments when the opportunity arises to attain them by force. Even if a person has only a slight preference for avoiding smoke exposure, he has no reason to oppose a ban (unless he values quaint ideas like respect for property rights, freedom of association, and diversity). As I’ve written before, a non-smoker’s revealed preferences may be very different:

To find out if people really demand smokefree spaces you have to offer them some trade-offs. Are they willing to travel a little further to avoid smoke? To go to a slightly more expensive place? To go where the crowds are less hip? If not, then they probably don’t really care about smoking, even if they say they do in the abstract.

Of course, there’s no need to set up experiments to figure this out. The experiment was conducted thousands of times each day among the competing bars and restaurants in, for example, pre-ban DC. The conclusion they reached is that some smokefree establishments can be viable, but that most people either enjoy smoking or tolerate being around it. Owners would probably have continued to shift toward smokefree policies over time, but there’s no good reason to think that the slow trend in that direction was out of touch with actual consumer preferences and needed to be hastened by a ban.

These considerations cease to matter when smoking policies get taken out of the realm of economic trade-offs and into the realm of winner-take-all politics. With a smoking ban on the table, previously tolerant individuals become rabidly anti-smoker. They exaggerate their annoyance with tobacco smoke. Perhaps they even fool themselves about the true extent of their dislike, given that before the ban they made few attempts to find smokefree alternatives to their favorite hangouts. With non-smokers in the majority, they face little opposition to imposing their will on the smoking minority.

In that post I stated the issue a little too strongly. Some people (like Megan) really do have deeply held non-smoking preferences and bar owners take time to notice and respond to changing consumer demand. However, the discrepancy between people’s stated and revealed preferences should make one cautious about describing the situation as a market failure, and certainly not as a failure that can only be corrected by making every business smokefree. (DC Councilwoman Carol Schwartz’s proposed tax credit to businesses that forbid smoking would have been a much more sensible remedy.)

I do think Henry Farrell is correct to note that prominent early smoking bans helped create a sudden shift in norms. By changing expectations and spreading fear of secondhand smoke they made non-smokers much more willing to demand smokefree environments, whether by denying their patronage or through the political process. But this is not a failure of markets or of libertarianism; before the norms changed markets were probably doing a fairly good job delivering what their customers felt they could justifiably demand.

Also, while the success of early bans in changing norms is a testament to government’s occasional ability to enact social change, it is not a point in favor of further bans. Now that a market for smokefree bars and restaurants is firmly established, the case for comprehensive bans in jurisdictions that do not have them is much weaker. So is the case for existing bans; their work completed, they should be loosened or repealed to allow the preferences of smokers to once again find expression in the market.

Update: Jonathan Adler weighs in with a similar argument. Stephen Bainbridge reflects further on the ability of law to alter social norms. Patri Friedman explains how California’s ban triggered favorable changes in Vegas poker rooms.

Update 2: Brad Taylor puts the argument in graph form.