Hooked on Flavor: Addiction, Present Bias, and the Consequences of E-Cigarette Flavor Policy

Flavored e-cigarettes have captured millions of users, disproportionately teens and young adults, amid fierce controversy over flavor bans. To evaluate e-cigarette flavor policy, I develop and estimate a dynamic discrete choice model of cigarette and e-cigarette demand featuring present-biased consumers, addiction and flavored habit stocks, heterogeneous flavor preferences by household age composition, and unobserved heterogeneity. Using NielsenIQ scanner data for 2021–2023, I document strong habit persistence, a heightened flavored e-cigarette demand among households with younger individuals, and a strong preference for non-FDA authorized e-cigarettes. I estimate the dynamic model via a two-stage pseudo-maximum-likelihood procedure under rational and time-inconsistent discounting to simulate counterfactual flavor policies. Three findings emerge. First, the dominant response to a ban is abstention: cigarette consumption among e-cigarette using households falls by 0.5 to 1 pack per month. Second, restricting the ban to only FDA-unauthorized brands captures 87% of the addiction reduction that results from the comprehensive ban. Third, a 2.78/mL excise tax achieves roughly two-thirds of the comprehensive ban’s addiction reduction among persistent e-cigarette using households at close to zero welfare cost, versus a $1,400 per-household loss under the ban. Present bias leaves this ranking intact but converts part of the measured loss into an internality correction, turning the tax's effect into a net gain of roughly $500 per e-cigarette using household.