Monday, January 14, 2013

Fighting Alcoholism with Double Markups

Ben Franklin said "Beer is proof that God loves us and wants us to be happy" (or maybe not). But we also know that there are dire consequences from imbibing too much. According to Tim Hefernan's article in Washington Monthly, these consequences are in evident in much of Europe.
England has a drinking problem. Since 1990, teenage alcohol consumption has doubled. Since World War II, alcohol intake for the population as a whole has doubled, with a third of that increase occurring since just 1995. The United Kingdom has very high rates of binge and heavy drinking, with the average Brit consuming the equivalent of nearly ten liters of pure ethanol per year.

To an economist, an obvious way to discourage over-indulgence (or any indulgence) is to raise the price. Indeed, he claims these adverse consequences are the result of higher US prices. Hefernan argues that legal restrictions preventing vertical integration to eliminate double markups make the US supply chain inefficient and, thus, raise prices. But even this might be changing.
And so, for eighty years, the kind of vertical integration seen in pre-Prohibition America has not existed in the U.S. But now, that’s beginning to change. The careful balance that has governed liquor laws in the U.S. since the repeal of Prohibition is under assault in ways few Americans are remotely aware of.

I wonder if this change could be used to determine what the cost, in terms of lost consumer surplus, is per case of alcoholism avoided.

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