After reading this excellent post on the liquor store regulation idea on Kiwiblog (which aggregates the thinking of a number of other blog authors posts on the issue are found *,*,*,*), I’ve decided to do a little thinking out loud about the issue.
Now, to analyse what it going on we have to ask why we want to have tighter controls on liquor outlets in the first place. From what I can tell, liquor outlets aren’t the direct cause of harm – the consumption of alcohol is. As a result, these measures are based on the causal link: More liquor outlets -> more liquor consumption -> more crime.
For fun, lets take as given that more liquor consumption leads to more crime. We still need the prevalence of more liquor outlets to cause more liquor consumption for this story to float. How does this work?
Well the fact that there are more liquor outlets DOES NOT increase demand for alcohol. It does however reduce the transaction cost associated with buying alcohol. As a result, if we have more liquor outlets popping up around the place, we can expect more alcohol consumption in the areas where the outlets turn up – fair enough.
However, how do we calculate the transaction cost? Well, there is the cost of getting to the outlet (say the cost of driving there) but more importantly there is an opportunity cost associated with getting there and buying it – namely the cost of time.
As a result, if the government’s policy was to reduce the density of liquor outfits in a uniform fashion across the country, everyone would suffer a certain increase in the cost of grabbing any liquor solely from their opportunity cost of time. Now it would seem to me that people who are going to commit the sort of violent crime that this policy is reacting to (robbing liquor stores) would probably have a lower opportunity cost of time than the rest of society – implying that it will have less impact on their liquor consumption decisions in the first place.
If the policy instead focused on lowering the density of liquor stores in areas that are susceptible to this type of crime then we have to ask – what sort of reduction in liquor consumption would we see from this increase in costs. I suspect that the answer will be, a very small decrease.
This reminds me of back in the day when King Country was a “dry” area. The liquor outlets in Kihikihi had a great time of it, as people would just travel north to get their alcohol, or would brew their own. If full scale liquor bans struggled to prevent consumption back then, having to drive an extra couple of km’s to get booze now isn’t going to stop many people.
As a result, if the link between the number of liquor stores and the quantity of liquor consumption among the target group is very small, then this policy seems really quite pointless.
Although Mrs Clark stated that:
New Zealand research, soon to be published, would show outlet density was associated with binge drinking and alcohol-related harm to young people, Miss Clark said.
the correlation between these two variables in recent times does not imply causation without a believable story behind it.
The existence of liquor outlets DOES NOT create demand for liquor – it can only influence the cost of getting liquor. If we really want to reduce alcohol consumption as the result of an externality we should just tax it (although I realise this is far from a perfect solution, given the way the externality is created), rather than messing around regulations – or potentially we could do nothing at all, and realise that whatever we try to do will just make matters worse.