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In the days before indoor smoking bans, individual bars and restaurants were resistant to prohibit smoking for three main reasons: they were unable to predict consumer reactions, they were reluctant to go against the status quo, and they were hesitant to act first among their peers. However, the decision to go smoke-free was made for many in the service industry when various states and counties passed control legislation. A natural experiment is created by the nature and timing of such smoking bans. This experiment allows for the testing of hypotheses about the implications restrictions have on the bar and restaurant industry. This paper examines the effect smoking bans have on bar and restaurant patronage ultimately observed through employment, which is directly derived from the business of smokers and nonsmokers. Because people can avoid policies by crossing borders, choosing an appropriate control group presents trade-offs. Researchers may either use geographically close localities (which may be contaminated by spillover effects) or distant regions (which may not be as characteristically similar to the treatment area in question). This paper presents a novel approach by using both sets of controls while also accounting for spillover into adjacent areas, thereby avoiding the trade-off decision all together. Although created to account for the spillover effect of smoking bans, this model is relevant to an endless number of future evaluations of geographically inconsistent policies. This paper focuses on how including additional measures of contamination in the analysis yields results that strongly support a net financial benefit for bars and restaurants under smoking bans while also explaining how previous studies (which have neglected these spillover effects) may have found a range of insignificant and contradictory results.

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