A Postmortem on the Cigarette Settlement

Abstract

The settlement of the Attorney Generals' suits against the cigarette industry for $206 billion was a landmark outcome. By any standard, the financial stakes were enormous, dwarfing eventhe largest tort liability judgments and punitive damages awards. Moreover, what was especially noteworthy was that the party paying for the costs was the cigarette industry, which to date had been almost unscathed after decades of litigation involving the hazards of smoking... Even more surprising than the enormous amount of the settlement is that any portion is being paid at all to the states. Past research at the national level indicates that cigarettes are self-financing. If cigarettes in effect pay their own way and thereare no net costs, why is it that the states have a valid claim?... In this article, I will examine the nature of the lawsuits and assess the costs the states incur. This assessment indicates that by any reasonable reference point, the states on balance benefit financially from cigarettes. Moreover, the method by which the states calculated costs substantially overstates any legitimate measure of any cost component, leading to windfall gains to the states as a result of the cigarette settlement.