The proposed tobacco industry settlement announced last week involves some peculiar economic effects, some analysts point out. While the $368 billion cost is supposed to be paid by cigarette makers, economists expect that smokers will eventually pay the price. And there is considerable evidence that smokers already pay in excise taxes four times more than the additional costs involved in their medical care.

• Studies show that demand for cigarettes is only modestly influenced by price -- with a ten percent price increase reducing sales by far less than ten percent.

• At least two-thirds of the settlement bill will come directly out of smokers' pockets, says Harvard economist Joseph Newhouse.

• Analysts estimate that the cost of a pack of cigarettes -- now $1.80 to $2 -- will rise by between 50 cents and $1.

Studies show that the total lifetime outlays for smokers' medical care are actually not much higher than for non-smokers, totaling about $50 billion annually, but the excise taxes collected from smokers are nearly four times that amount.

However, the arithmetic isn't quite so straightforward: since smokers die earlier than non-smokers, they collect less from Social Security and other pensions.

A Rand Corporation study in the late 1980s estimated that the cost of smoking not paid by smokers themselves came to just 15 cents a pack -- less than federal and state excise taxes. Today the federal excise tax on a pack of cigarettes is 24 cents a pack, with state excise taxes ranging from 2.5 cents in Virginia to 82.5 cents in Washington.

Source: Peter Passell, "Who Will Pay the Tobacco Industry's Huge Bills? Smokers," New York Times, June 26, 1997.