My stomach fell when my brother (who is at Clemson) told me that someone brought moonshine to his frat's party; I thought of all the awful side effects of this unregulated product. This article that I read on a pro-alcohol policy site, lists the reduction in negative consumption externalities if alcohol costs 10% more. You can read the full list on the website but the negative externalities reduced by raising alcohol prices range from a 3.6% drop in sexual assaults/rapes to an increase in the ease of creation of new businesses. In my research at UVA hospital, I see the damage alcohol has done every time I collect data. As much as I think that the government shouldn't make every moral decision, I also kinda wish that these participants and other alcoholics had been "priced out" of the alcohol market.
The only problem that I have with Stigler's work is that he doesn't address the fact that higher prices can lead to secondary markets. When Stigler goes down to South Carolina and regulates the moonshine market at Clemson, I'll be happy.
3 comments:
As discussed in class, some forms of regulation do create benefits for society as a whole, such as those mentioned by Montie with regard to alcohol policy. Stigler, however, does not argue that “regulation is intended to protect at least a large portion of the population.” Instead, he notes this as an alternative view to his, that “regulation is instituted primarily for the protection and benefit of the public at large or some large subclass of the public.” He then argues to the contrary, "as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit." The benefits to society as a whole are interesting, but Stigler’s theory does not acknowledge them as a motivating factor in the regulatory decision making process.
It is reasonable to think that Stigler’s theory can be extended to the existence of secondary markets. If secondary markets are formed as a result of regulation, then Stigler would suggest that regulation would be modified as necessary to maintain benefits to the industry. This appears to be the case in the market for moonshine. Distilleries in several states have started producing legal moonshine, which the article below suggests will be subject to various regulations. Only time will tell whether such regulation will destabilize the market for illegal moonshine, but Stigler’s theory suggests that, given that the market for illegal moonshine is in direct competition with that for legal moonshine, regulation will be used to do just that.
http://www.reuters.com/article/2011/07/28/us-southcarolina-moonshine-idUSTRE76R7ZA20110728
One leading benefit that Stigler claims a state can provide an industry is the power to control entry barriers. One leading example he provides is the difficulty of procuring a trucking license. One extreme example of an industry with barriers to entry is right here in Virginia. The Virginia department of Alcoholic Beverage Control, or ABC, currently operates as a state-run company with a total monopoly on the wholesale distribution of hard liquor. Montie discusses some of the possible effects of alcohol regulation in this blog post which has become all the more relevant due to recent news.
In the article below article, the seemingly imminent privatization of the ABC in Virginia is discussed. This would bring about a number of interesting scenarios relevant to public choice, the most important of which is the reduction in the barriers to entry into the hard liquor market. With the market now privatized, the free hand of the market is now able to set liquor prices at equilibrium instead of at complete monopoly prices. If general economic theory prevails, liquor prices will drop as a result of the movement away from a complete monopoly towards a competitive market. Shots might no longer cost $10 at Trinity, but the social impact cited in the UVa hospital research is likely to take a hit for the worse.
http://washingtonexaminer.com/blogs/local-opinion-zone/case-abc-privatization-why-virginia-booze-business
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