Regulation of the Wine Industry

Twenty four states ban or restrict sales of wine from other states. An Economist article deals with protectionism in the wine industry, discussing a lawsuit which several wineries and wine distributors have brought against the state of New York for restricting their access to the second-largest market in the United States. Defenders of New York’s position argue that the state restricts wine sales for the good of its citizens; the lawyer representing New York’s wine wholesalers defends the regulations, saying that the licenses New York sellers must obtain keep them from selling alcohol to minors. Other observers attribute the regulation to the irrationality of politics; the legislation giving states the ability to regulate interstate wine sales hearkens back to the end of Prohibition and the lawyer for the out-of-state wine distributors jokingly blames the regulation on Americans’ puritanical spirit. In addition, the two sides have turned the dispute into a states' rights argument, an issue about which--in theory--the wine sellers are probably not particularly concerned. Stigler and Peltzman, on the other hand, would argue that it is the impetus of the New York wine industry that has kept the regulations in place and has dictated how it is designed and operated. Although the state politicians were elected to represent their constituents, Stigler would argue that it is likely that they are enforcing a policy that would be voted down by a full, fully informed public. Kenneth Starr, of the famous Lewinsky case, is the out-of-state distributor’s lawyer. He argues that keeping his clients from selling their wine across state lines “robs consumers and growers of a fundamental freedom.” The Economist article does not mention the lobbying efforts of the New York wine industry, but one would assume, through Stigler’s model, that the regulation would be responsible for a net loss to society through deadweight loss from the restricted output, administration costs for protecting the regulation and ensuring that wine is not illegally sold across state borders, and the rent-seeking costs carried by the New York politicians and the New York wine industry. In this area, Peltzman differs from Stigler. Peltzman would argue that the restrictions are only in place because the marginal benefit they bring to society is greater than the marginal cost, and that otherwise, opposition to the regulations would have been too strong to overcome. From his point of view, the current case could perhaps be viewed as a test for whether or not the marginal benefit to the public is still greater than marginal cost.