Government Prevention Policy and the Relevance of Social Cost Estimates

Summary Estimates of the social costs associated with the consumption of hazardous commodities such as alcohol, cigarettes and illicit drugs feature prominently in the current debate on prevention policy. Such figures are being increasingly used to urge greater government action on prevention. This paper presents an introduction to the welfare economics of government intervention in markets for hazardous commodities and concludes that—contrary to what is often presumed—social cost estimates can never identify situations where greater government involvement is warranted. Policy‐makers would therefore seem to be justified in ignoring campaigns for greater government action which are based on social cost figures.