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I'd like to thank all three commentators for their careful discussion of my proposals. I'll begin with David Shein, who makes two very important points. First, he raises the problem of black markets, which received only a passing mention in the original piece. Generally speaking, black markets can be expected to operate more readily, and on a larger scale, given opportunities for arbitrage: Much depends on how easy it is for illicit sellers to obtain the commodity at prices lower than those at which they can sell it on, given what other costs they incur in the process, such as those associated with transportation and storage. (Opportunities for arbitrage can be enhanced by certain ways of designing licences—see the discussion of Chapman's proposal below.) Shein is right to distinguish between a black market in actual tobacco products, and a black market in licences granting a legal right to purchase such products. As he points out, a market in stolen or forged licences would be likely to carry much lower storage and transportation costs than those associated with tobacco itself. This is an astute observation. But it would be hasty to assume that illegal trade in licences would be easy to get off the ground. Illicit selling would have to rely on forgery and/or the ability to modify licences so as to change the identity of their bearer. Accordingly, perhaps the best response to Shein's concern is that licence design can likely profit from ongoing progress in anticounterfeiting technology, such as that used to combat black markets in other documents that are intended to be non-transferable across users, such as passports. As these technologies continue to improve, it is likely that a black market in licences will become gradually less viable.
Shein's second concern is more philosophical: As I acknowledged in …
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