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Could tweaking the profit function result in a better alignment? For example, issue a fine for every confirmed sale that reached someone in the wrong age group. Upon the return of the unused product direct the proceeds of the fine back to the person that made the purchase.

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Contribute the fine towards smoking cessation programs. A teenager doesn't need their money returned to them if they get caught buying tobacco products.

Need? No, I guess they don't. But if we want to incentive the teenagers to report, monetary incentives seems to work.

It would result in perverse incentives.

Teenager willingly buys e-cig for $50, reports e-cig company for $150 fine, then returns the unused e-cig in exchange for the proceeds of the fine. Even without a refund, they just made $100.

Is that such a perverse incentive? It is roughly equivalent to the regulator hiring the teenager for $100 at the company's expense to check if the company is following the rules about not selling to teenagers, except the teenager only gets paid if the company violates the rules.

Why is that a perverse incentive? If the baseline is that it’s illegal to sell such things to kids, then this seems like a roundabout way to hire kids as a forcing mechanism to make companies really careful not to do this.

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