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Everyone knows smoking is injurious to health yet consumption of tobacco and related products never seems to come down. Apart from being a menace to personal health, it also has negative repercussions for the economy and society. Though smoking is an individual decision, it is problematic because it gives rise to a number of negative externalities.

One of the most obvious economic costs of smoking is related to its production and consumption. According to the World Bank, 22% of the adult population are smokers, out of which 80% live in low or middle-income countries. Due to the addictive nature of tobacco products, consumers often find it difficult to estimate the true cost. Smokers thus often end up making decisions using hyperbolic discounting; they tend to overestimate the short-term benefits and therefore choose a smaller- sooner reward over a larger-later reward. In this case that is having one more cigarette over leaving it.

One of the most concerning problems is that the harmful effects of tobacco products are not limited to consumers only. Growing as well as manufacturing tobacco products are extremely labour intensive and also have an adverse impact upon the workers of these industries. From nicotine poisoning to exposure to a large amount of environmentally hazardous pesticides, these workers often find their health degrading in ways similar to the consumers of these products. Moreover, second-hand smoke affects non-smokers, thereby increasing the incidence of many diseases among friends and families of smokers.

Smoking tobacco and other related products are one of the leading preventable causes of death, killing more than 7 million people annually. Consumption of tobacco gives rise to an array of diseases which puts tremendous pressure on the public health care system. Many of these smokers are dependent on the public healthcare system, which leads to an exorbitant amount of money being spent. Thus, the cost of smoking by individuals is borne by society as a whole. A study conducted by the Oxford University Press in 2017-18 found that the health expenditure on treating tobacco-related issues alone is about 5.3% of all the public and private expenditures in India.

Further, due to poor health and often reduced life span of smokers, smoking causes a loss in productivity and thus reduces the income-earning potential of a country. This leads to a huge loss in the production capability of a nation. According to a study conducted by the National Library of Medicine on the Economic Costs of Diseases and Deaths Attributable to Tobacco Use in India (2017-18), the total costs attributed to tobacco use from all the diseases and deaths in India in the year 2017-2018 from persons 35 years and older amounted to US$ 27.5 billion.

Now even though tobacco products are taxed, the revenue collected from these taxes is far lower than the costs borne by society for the same. The economic losses are approximately 1.04% of India’s GDP, while the tax revenue covers only 12.2% of these economic costs. Thus, for every INR 100 which is received as excise tax from a tobacco product, INR 186 is imposed on the society as costs for the product’s consumption.

Smoking and gift-giving are like two sides of the same coin. Though it might be difficult to comprehend, smoking and gift-giving do have some similarities which might seem baffling to an individual at first glance.

Whether it is the birthday or anniversary of someone we love or a festival which requires us to buy gifts; we as individuals are often left scratching our heads when trying to figure out what to get for others. People are often plagued by this problem. All they want to do is simply ask the other person what they want and save themselves the trouble of spending hours scrolling through sites or brainstorming ideas. The question then arises how can giving gifts be harmful to society? It might seem like a confusing question but the answer behind this is relatively simple; we as individuals know what we want, and therefore are most capable of maximizing the utility from what we get.

Whenever we buy something for someone, we are generally unable to comprehend what they would like best. The giver might value something more than the receiver would value it and therefore, it is possible that the gift we get for them might not be as valuable to them as much as it would have been to us. This problem arises because a person’s consumption choice is made by someone other than the actual consumer. Assuming that consumers know themselves the best and therefore will make decisions that will give them maximum utility, gift giving becomes a possible source of deadweight loss.

According to a research conducted at Yale University in 1993, gifts lose anywhere between 10% to 33% of their value. This would mean that for every INR 100 spent on a gift, the receiver only enjoys value of INR 67 to INR 90. In this research, students were asked to estimate the cost of the gift they received during Christmas and then were asked about their willingness to pay for the same if they had to buy it themselves. The research further pointed towards the fact that this loss is lower in case of closer relations. Thus friends and significant others are better at giving gifts than grandparents, uncles and aunts. A gift is only effective when the receiver receives the same amount of utility from the gift as he would have if he had spent the cash equivalent to the cost of the gift.

This further questions the amount of time and effort we spend while buying gifts and if it is truly justified if it only leads to a loss in society. The answer is pretty simple, we as givers also receive some amount of satisfaction from giving gifts since it makes us feel like a better friend, sibling or parent.

Furthermore, the question of the similarities between smokers and gift-givers arise. Well, it is simple when we make economic decisions without having complete or perfect knowledge, we tend to overestimate or underestimate the value and cost of items. In the case of smokers, it means underestimating the costs of consuming tobacco products and in the case of gift-givers it means overestimating the value of a gift. In society, whenever we deviate from the optimum quantity of good we end up in a situation of loss of societal surplus. Thus, even though both smokers and gift-givers are only trying to maximize their own utility, they without meaning to, end up causing a huge loss in society. Now although at an individual level this might seem a very small cost, the truth is that when these costs are aggregated for the society as a whole their value becomes consequential. It’s along the lines of, a small cost to man; a huge cost for mankind. Now although smoking doesn’t have any benefit and one should avoid it’s an addictive trap, gift-giving on the other hand isn’t something that should be avoided. Because let’s face it, who doesn’t like a surprise gift? One solution to solve this dilemma of economic loss of gift-giving is using gift cards. Not only will it save you, your precious time but it will also make for a better gift for the receiver since they continue to fulfil their hearts desire. Therefore, the next time you have to get a gift for someone you don’t know too well, do give gift cards a try!

By Nehal Kaul


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