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 controversy over how best to regulate them. To evaluate e-cigarette flavor policy, I develop a dynamic model of cigarette and e-cigarette demand featuring addiction and flavor stocks, heterogeneous flavor preferences by household age composition, and unobserved heterogeneity. Using NielsenIQ scanner data for 2021–2023, I document heightened flavored e-cigarette demand among households with younger individuals, a strong preference for non-FDA-authorized e-cigarettes, and substantial habit persistence. I estimate the dynamic finite mixture model under time-consistent and time-inconsistent discounting to simulate counterfactual flavor policies. Three findings emerge. First, the dominant response to a ban on flavored e-cigarettes is abstention, not cigarette substitution: nicotine addiction falls by 89% and cigarette consumption by about 20 cigarettes (1 pack) per month. Second, full enforcement against non-FDA-authorized brands reduces addiction by 86%, nearly matching the ban, while cutting initiation by 51% for households with younger individuals. Third, a $2.78/mL excise tax reduces addiction by 80% at no net consumer-surplus cost, whereas households would need $600 each to be as well off as before the ban. Present bias reframes part of each policy’s consumer surplus cost as an internality correction for over-consumption, so all three policies leave households better off.