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The Effect of Alcohol Prohibition on Alcohol Consumption

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  • Jeffrey A. Miron

Abstract

This paper examines the impact of Prohibition on alcohol consumption. Since data on both the price and quantity of alcohol are unavailable during the Prohibition period, it is not possible to estimate Prohibition's impact on either the supply or demand for alcohol. Assuming the existence of a reasonable proxy for alcohol consumption, however, it is possible to estimate the net impact of Prohibition on the equilibrium quantity of alcohol consumed. I estimate this effect under a range of assumptions about the nature of preferences, taking into account other possible determinants of alcohol consumption and the proxy series. The overall conclusion of the paper is that Prohibition exerted a modest and possibly even a positive effect on alcohol consumption. One possible interpretation of the results is that the demand for alcohol is relatively inelastic, although many earlier studies find substantial elasticity in the demand for alcohol. Another possible interpretation is that Prohibition created a forbidden fruit effect that increased preferences for alcohol, tending to offset the depressing effects of increased prices on demand. Still a third possibility is that Prohibition failed to raise alcohol prices substantially, perhaps because black markets suppliers face low marginal costs of evading government regulations and taxes. Existing data provide some support for this last possibility.

Suggested Citation

  • Jeffrey A. Miron, 1999. "The Effect of Alcohol Prohibition on Alcohol Consumption," NBER Working Papers 7130, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:7130
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    1. Cook, Philip J. & Moore, Michael J., 2000. "Alcohol," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 30, pages 1629-1673, Elsevier.
    2. Clements, Kenneth W., 2004. "Three facts about marijuana prices," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(2), pages 1-30.
    3. Abbink, Klaus & Dasgupta, Utteeyo & Gangadharan, Lata & Jain, Tarun, 2014. "Letting the briber go free: An experiment on mitigating harassment bribes," Journal of Public Economics, Elsevier, vol. 111(C), pages 17-28.
    4. Kenneth W. Clements & Yihui Lan & Xueyan Zhao, 2005. "The Demand for Vice: Inter-Commodity Interactions with Uncertainty," Economics Discussion / Working Papers 05-30, The University of Western Australia, Department of Economics.
    5. Angela K. Dills, 2004. "Alcohol Prohibition and Cirrhosis," American Law and Economics Review, American Law and Economics Association, vol. 6(2), pages 285-318.
    6. Kenneth W. Clements & Xueyan Zhao, 2005. "Economic Aspects of Marijuana," Economics Discussion / Working Papers 05-28, The University of Western Australia, Department of Economics.
    7. Cook, Philip J. & Moore, Michael J., 1999. "Alcohol," Working Papers 156, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.

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    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • J1 - Labor and Demographic Economics - - Demographic Economics

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