How Do Private Markets Address Smoking Externalities?

Abstract

We survey bars and restaurants in Genesee County, Michigan toexamine how, absent a smoking ban, different establishments accommodatesmokers and nonsmokers. We find evidence that smokers and nonsmokers aresystematically accommodated. The majority of establishments without barsvoluntarily ban smoking, and the majority of establishments with bars restrictsmoking to a separate room or to the bar area. This pattern of accommodation isconsistent with what the Coase Theorem would predict when dealing with theexternalities created by secondhand smoke. (D21, H75, I18)