Excellent idea – some easy content!

With most people having access to private transport, even in the poorest parts of the community, I wonder whether fewer stores affects transaction costs that much. I suspect more small liquor outlets in any particular place suggests you’ve the type of customers that aren’t that worried about a wide selection fine wines and boutique beers.

He does make that rather reasonable point that the full cost of purchasing alcohol includes the transactions costs of getting it, and increased availability reduces those transactions costs.

Know of anything better on trying to work out causality?

I also like the comparison with cigarettes – stating that both have externalities, why should we treat them differently.

The only argument you could make for more stores causing more drinking is if the cextra competition is driving down prices – then the obvious answer would be jacking up taxes rather than restricting the number of stores. Have we ever tried restricting the number of cigarette outlets?

This then became known as “the hour of power”, if you only have an hour to drink you make sure you get your money’s worth!

Gotta love unintended consequences:)

My thoughts were that prohibition, 6 oclock swill has had little effect (if not a negative effect) previously so this should be similar for a policy that reduces the number of stores but why? You’ve answered this with the taboo argument, and that consumers will buy more per transaction, increasing binge drinking (same as the 6 oclock swill; where drinkers consume more in the shorter time avaliable). Completely fleshed it out, Cheers.

“Perhaps the thinking goes that reducing the number of stores, reduces the supply of liquor, the supply curve shifts to the left, reducing quantity supplied and increasing prices”

I had this thought as well. However, as you say supermarkets are unlikely to change liquor prices as a result of this legislation, and they are the price leaders in the market.

“However, by reducing the number of stores, this may reduce the influence the alcohol industry has on low drinkers and young drinkers thereby reducing the number of people who move from the low drinker category into this heavy drinker category”

Indeed, so this would fundamentally treat alcohol as an addictive or experience good where we have some sort of “over-lapping generations” type of thing going on.

However, I’m not convinced that a small transaction cost such as having to drive up the road a little further would be sufficient to change the consumption of alcohol by young people.

Furthermore, I can think of two ways that this may actually lead to worse drinking habits. Firstly, by restricting the number of liquor outlets you may effectively increase the demand for alcohol by young people by making it more “taboo”.

Secondly, the transaction cost is on the initial purchase of alcohol – not the quantity you buy. As a result, this policy makes it optimal to buy more alcohol at once. Given that the amount you drink suffers from a time inconsistency problem (“I can have one more”) this effectively reduces peoples ability to buy less alcohol as a precommitment mechanism – leading to more binge drinking (speaking from far too much experience 🙂 ).

Ultimately, as long as supermarkets continue to sell alcohol the increased transaction costs will be incredibly small and will not lead to any sort of improvement in our binge drinking culture.

“I guess this whole argument comes with an assumption that our heavy drinking culture in NZ comes from the high avaliability of alcohol”

That is partially true, there is a holistic type argument that states that the availability of alcohol will increase demand for it over time, as it becomes part of our social fabric. However, then we have to ask, will shutting down some small liquor stores heavily reduce availability? I’m not convinced it will.

I only have one other argument which I can’t say is particularly good, but I’m having trouble arguing against it.

Perhaps this is about a long term strategy to influence our culture away from alcohol. I agree that the ones who pay the most for the proposed policy are the ones who enjoy only the occasional alcoholic beverage. Alcoholics and heavy drinkers probably don’t care about the slight increase in transaction costs so it doesn’t stop them from drinking. However, by reducing the number of stores, this may reduce the influence the alcohol industry has on low drinkers and young drinkers thereby reducing the number of people who move from the low drinker category into this heavy drinker category. i.e. in the long run there is a reduction in the demand curve; whereas in the short term there is only a material increase in transaction costs for those who don’t place a high value on personal drinking (perhaps those who percieve a high negative externality of heavy drinking – this is another discussion altogether but in short I kind of like the idea that those who see the need for change also pay the costs for implementing that change; and those who cause the negative externality to society pay the costs of duties etc).

I guess this whole argument comes with an assumption that our heavy drinking culture in NZ comes from the high avaliability of alcohol – (This is prob more anthropology than economics but would be interesting to find out). I would assume that avaliability is probably only a small factor – prohibition, the 6 oclock swill etc, were all initiatives that reduced availability, yet I think haven’t reduced this drinking culture.

Too true – must be one of the joys of working as an economist in the public sector, good thing that we don’t 🙂