In the previous post I explained why it may well be in some cases that companies advertise too much for their common good. I used it primarily as an example to illustrate how the presence of negative externalities can lead to too much of the activity that causes the negative externality (such as driving cars, et cetera). I here just want to point out an interesting direct implication of the advertising example I gave.
In recent years there was a fairly effective campaign in many countries in the world to reduce smoking (which by the way is almost certainly an activity with negative externalities). This was achieved by a mix of policy measures. These included education about the serious consequences about smoking (“you will die soon and horribly” written on the package together with gruesome pictures), banning smoking from many public places, significant price increases (more about this later), as well as advertising bans. Similar measures are now considered in at least the EU to reduce alcohol consumption, which is also often seen as creating negative externalities.
I certainly believe that price increases are effective to reduce the consumption of cigarettes and alcohol. I also believe that enforced bans on smoking or drinking (enforced with fines or prison time) will be effective even if the enforcement is perhaps not always necessarily proportional to the “crime”. A little bit beside the point: I have the feeling that the “education” is not very effective, but I may well be wrong about this.
But the main point I want to raise is this: I have heard the argument that advertising does not so much affect how much people smoke or drink but mostly only what they smoke or drink. If this is true then a ban on advertising will, by the logic of the previous post, only help to raise profits for the cigarette and alcohol producers, without any effect on smoking and drinking levels.
It would be interesting to assess empirically whether this is true or not. This is probably not so easy, as in many countries many policy measures were put in place at the same time, so it is hard to know which of them was effective. This does not mean that a clever empirical design could not address this, though.