Tradable smoking pollution permits
As an alternative to smoking bans, some economists have proposed a system of tradable
smoking permits as a solution to the problem of cigarette-smoking "externalities" in
public bars and restaurants. Tradable smoking pollution permit systems work similar to
other cap-and-trade emissions trading systems successfully used by the Environmental
Protection Agency since the 1970s to curb other types of pollution. The proposal has
been suggested by Profs. Robert Haveman and John Mullahy of the University of
Emissions trading systems allow lawmakers to define the overall level of pollution that is
socially acceptable, and then issue tradable permits corresponding to that amount.
Companies who wish to pollute must hold permits equal to their emissions. This market-
based approach to pollution control provides firms with economic incentives to minimize
pollution -- as they can sell unused permits to other firms -- rather than direct regulatory
penalties, which tend to have high administrative costs.
Tradable pollution permits as a market-based alternative to smoking bans have been
suggested as follows: Lawmakers decide the optimal level of smoking establishments for
an area. The total fire occupancies -- or some proxy based on alcohol sales receipts -- for
those establishments is totaled up, and smoking pollution permits are issued accordingly.
Establishments are required to hold permits equal to size -- fire occupancies or level of
alcohol receipts -- if they wish to allow smoking. In essence, they are required to own the
property rights over the clean air space of all occupants before any can smoke.
Establishments with unused permits can sell them on the open market to smoking
establishments, providing economic incentives to reduce smoking in bars and restaurants.