With alcohol regulation remember

Remember the simple fact that, as long as we believe people are responsible, have better information on themselves, and are better able to make choices regarding themselves then arbitrary regulation (or some lesser combination of these points), then we shouldn’t focus on the entire “social cost (private + external costs)” associated with alcohol when regulating.

The focus should only be on the external cost – the cost placed on other individuals from the choice of one individual.  The private costs are already being taken account of when the choice is made.

As a result, if the calls of a 50% increase in excise tax are not based just on true external costs, but also broader private costs, they are asking for “too much tax” in a strict “efficiency” sense.  They may be doing this as they genuinely dislike alcohol (although the risk of unintended consequences spring to mind here – namely people drinking more alcohol beverages if the cost per alcohol unit is lower, and also people brewing their own), or because they think people are inherently stupid.  However, neither of these reasons seems like a good justification for policy.

For more discussion on this sort of stuff, see Offsetting Behaviour on the policy applications for an earlier BERL report, the search of “alcohol” on his site, our post on policy relevance, and the search of “alcohol” on our site ;)

UpdateOffsetting behaviour (Eric in more detail here), Kiwiblog, and Not PC discuss.

I love this quote from Kiwiblog, “He even went out to Courtenay Place with a Police escort, and said he saw scenes that “no civilized society can relish”.” – if I was behind these scenes Geoff, I’m sorry ;-)

Update 2: A facebook group based on Geoff’s quote.

  • http://offsettingbehaviour.blogspot.com/ Eric Crampton

    AND even if you think people are irresponsible, have bad information, and make bad choices, the ONLY part of their private consumption that you can consider a social cost is the integral above the marginal benefit curve and below the marginal cost curve for that portion of consumption in excess of what that person would have chosen were he responsible, informed, and making good choices.

  • http://www.tvhe.co.nz Matt Nolan

    @Eric Crampton

    Agreed, it only implies that “good policy” in this wildly unrealistic world would involve PART of the private cost being taken into account.

    AND, even in the above discussion the issues of social benefits was ignored.

    If policy was based on good policy principles it would place a HUGE burden on basing policy on private costs. Doesn’t seem like lawyers are interested in good policy …

  • http://offsettingbehaviour.blogspot.com/ Eric Crampton

    AND we’d have to count the reduced consumer surplus for normal drinkers of the taxes imposed to reduce the costs on the bad ones; as moderate drinkers are twice as price elastic as heavy drinkers, the former will likely outweigh the latter.

  • http://www.tvhe.co.nz Matt Nolan

    @Eric Crampton

    Lots of bad policy coming … this is only one battle in an upcoming war methinks.

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  • http://excataloguewholesale.com Ash

    I live in the UK and the tax they levy on alcohol here is plain day light robbery,
    if its not bad enough to be taxed on your earnings your food and everything else they can tax you on, they have to tax you on your social life aswell.