Quit, Cut, Switch, or Roll: How Thai Smokers Compensate for Cigarette Price Increases

Presenter: Justin White, University of California at Berkeley

Abstract

In addition to quitting and cutting consumption, smokers faced with higher cigarette prices may compensate in several ways. This study examines three such compensatory behaviors among adult male smokers in Thailand: 1) switching to a lower-priced brand, 2) switching from factory-manufactured cigarettes to roll-your-own (RYO) tobacco, and 3) switching from buying packs to buying cigarettes by the stick. The results on the third action offer, to our knowledge, the first econometric look at the determinants of buying individual sticks instead of packs. All three compensatory behaviors have the potential to dilute the impact of cigarette tax policy on tobacco use.

Using two panels of micro-level, nationally representative data collected in 2005 and 2006, we estimate the effects of a large excise tax increase implemented throughout Thailand in December 2005. Prices rose by 15% during the study period, allowing sufficient variation to identify the price effects. A two-step discrete choice framework captures the characteristics that influence participation (decision to quit) in a binary model and the characteristics that influence consumption decisions in truncated submodels conditional on smoking. Estimates of the marginal effects and price elasticities for each behavior are calculated.

Preliminary results indicate that, controlling for socio-demographic and environmental variables, quitting and smoking intensity are highly sensitive to changes in the price of cigarettes, but so are brand-switching, stick-buying, and use of RYO tobacco. The price elasticity of switching to a lower-priced brand was 2.17—implying a high degree of price competition—and the price elasticity of switching from packs to sticks was 5.23, a large effect that reflects in part the low levels of smokers who bought sticks at baseline.

Higher cigarette prices in Thailand, resulting from an increase in the cigarette excise tax rate, made smokers more likely to quit and reduce consumption, exhibiting the potential of tobacco taxation as a health policy intervention. Yet, the analyses also indicate that many Thai smokers dampened the impact of the cigarette price increase by altering their consumption patterns: switching to lower-priced brands, purchasing loose cigarettes instead of packs, and smoking cheaper substitutes, namely RYO tobacco. Previous estimates of the price elasticity of demand for cigarettes have largely ignored these substitution effects. Policymakers in Thailand and elsewhere should recognize these unintended consequences of cigarette tax increases and consider policies to mitigate their adverse impact.