You make an empirical claim: “Because patrons select establishments based on the benefits and costs of patronage, they will avoid establishments with air policies they do not like.”

I believe you are ignoring a market imperfection arising from incomplete information at the point-of-decision. Example: if your room-mate SMS’es you that a group of your friends is heading to a particular bar, you generally do not have the opportunity to conduct proper due diligence regarding the air policy of that establishment. Absent some immediately obvious marker, I would hypothesize (and yes, this is also an empirical claim) that most decisions as to the establishment to be patronized will be made in the absence of information about the establishment’s air policy. Since the “wrong” air policy will be an irritant for a non-smoker, but a more severe hindrance to a smoker, most bars will opt to have a pro-smoking air policy, to maximize their customer-inflow. In the absence of information, most bar-goers (adopting the “lemon model”) will resign themselves to the probability that whatever bar they go to will, in fact, have a pro-smoking policy – leading to less outcry, despite a prevalent irritation at second-hand smoke.

One possible solution is to issue separate licenses for smoking and non-smoking bars, on equivalent terms (cost and ease of obtaining a license, frequency of inspections, etc.). The only difference would be that smoking bars would be required to adopt a name that reveals their policy, e.g., “Jake’s Dilemma Smoking Lounge”, or “Muldoon’s – Cigarette Bar”. Cf. incorporation laws that require corporations to include “Inc.”, “Co.” or some equivalent formulation in their name, in order to put suppliers and other creditors on notice of the entity’s limited liability nature.

Thom, I’d be curious to hear your reaction to this type of regulation, aimed at correcting a market imperfection rather than applying an outright ban. I appreciate that, by putting the naming burden on smoking rather than non-smoking establishments, a certain anti-smoking norm is being promoted (which may be a good thing). However, this burden is a relatively light one…