Smoke and Mirrors: The Political Economy of the Tobacco Settlements

Abstract

The 1998 Master Settlement Agreement (MSA) resolved litigation between forty-six states and the major U.S. cigarette manufacturers. In total, the defendants agreed to pay more than $246 billion over twenty-five years to compensate the states for costs incurred in treating smoking-related diseases. This article explores the political and economic determinants of the monies to be distributed to the states under the MSA. Consistent with a damage model, the evidence suggests that the tobacco settlement payments are positively correlated with states' smoking-attributable health care expenditures. However, the authors also find that politics influenced the amounts individual states are scheduled to receive from the tobacco companies: the four states that did not participate in the MSA, big-government states, and those with greater numbers of medical professionals and health-related organizations will collect significantly larger sums over time than the damage model predicts.