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Smoke and Mirrors

The Political Economy of the Tobacco Settlements

Austin Peay State University

William F. Shughart, II

University of Mississippi

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.

Key Words: Master Settlement Agreement • smoking-attributable Medicaid expenditures • interest groups • damage model • political economy model

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