Some people seem to be suffering from a misconception that teenagers are incapable of long-range thinking. Bullshit. Your kid is going to have to make decisions about things like smoking, drinking, and other activities on his own at some point. You might be able to control those decisions for him now, when he is 13, but what about when he is 16? 18? 22? …
It is very important that he be equipped to make these decisions with solid reasons, because as he grows older, he will come to rely less on what you have said and more on what he himself can see. Fortunately, it should not be hard for him to see reasons why smoking is unhealthy. I think the idea of a well-researched paper is excellent, because it will present him with those reasons (and whatever counter-reasons there may be), and because it will be he who is discovering the reasons on his own and for himself, not you shoving them down his throat.
Things like punishing him and taking away his money attack the short-term problem but do nothing in the long term. For example, as a high school junior, with no job and no car, I would have no problem going out every Friday and Saturday night and getting drunk and smoking. A lack of money or transportation or whatever is not a problem if you have friends. This is why I said that you might be able to control his smoking now, when he is 13, but even at that age, it is likely that he can still find a way to circumvent all your preventative measures. That type of security through obscurity is fundamentally flawed and is always weak and subject to failure. Education with the goal of preparing him to make an informed decision is a much better option.
If all your attempts at education fail, then you can resort to strictly punishing him, but quite frankly you probably will just end up with a continuing problem. This is not to say that I don’t think punishment has its place, just that I think first doing your best to make sure your son understands why smoking is bad is a much more important and more powerful step, and will alleviate the need for ongoing punishment if it is successful.
I don’t necessarily agree with an argument from economics, because while smoking is expensive, so are many other activities. He may not be dissuaded just because something is expensive, especially if he finds he really likes it. It can’t hurt to throw it out there, but I wouldn’t make it a main focus: the main focus should be his health and how he will be affected physically by continued smoking. I also really don’t buy the idea of rewarding him for not smoking. Excuse me? Since when were you supposed to be rewarded for doing what is expected of you and what is good for you? I think that is a bad idea and can set a bad precedent in other aspects of his life. Furthermore, you really shouldn’t underestimate his ability to do things without your knowledge: you’re not going to be there to hold his hand in every situation where he’ll have to make this type of decision, but the education you give him always will be there. If his only motivation is getting some sort of reward, he is being driven by the wrong desires, and won’t make decisions on a foundation anywhere near as sound as a solid education.
That’s my general advice, as a high school junior who can still remember pretty vividly the age of 13 and the 3 years that follow it.