With alcohol regulation we decided to remember that it is the external cost that matters. Now one reason private costs might matter in terms of regulation is internalities. There is a discussion of this with regards to boozing here.
This brings me to the idea of “addiction”. What is addiction, and why are we so scared of it. Looking at a search of TVHE, I can tell that the authors here are not scared of addiction, we view it a little differently to the black and white box often given by (say) health professionals (ht Dim Post).
For me, all addiction tells us is that the consumption of the good CHANGES the costs and/or benefits of the consumption of the good in the future. As a result, what is important is:
- Information with regards to how addiction functions (and the costs and benefits of consumption) for people,
- Having mechanisms available so people can “pre-commit” to consumption patterns in the face of an addictive good.
When we have these two pieces of the puzzle we can figure out what tax and what institutional policies can be established to improve outcomes with regard to the consumption of this specific good.
There is NOTHING wrong with addiction per see. If we banned things on the basis of addiction we would ban pretty much everything.
Personally I think of addiction as follows: A good is addictive if consuming it increases the marginal benefit of consuming it in the future and/or it increases the marginal cost of NOT consuming it in the future. The first type of addiction is unambiguously good, the second type is not – but it is internalised as long as people know about it, and people are able to deal with issues of time inconsistency.