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The Effect of Alcohol Prohibition on Alcohol Consumption

  • Jeffrey A. Miron

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7130.

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Date of creation: May 1999
Date of revision:
Publication status: published as Dills, Angela K. & Jacobson, Mireille & Miron, Jeffrey A., 2005. "The effect of alcohol prohibition on alcohol consumption: evidence from drunkenness arrests," Economics Letters, Elsevier, vol. 86(2), pages 279-284, February.
Handle: RePEc:nbr:nberwo:7130
Note: HE
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  1. Miron, Jeffrey A & Zwiebel, Jeffrey, 1991. "Alcohol Consumption during Prohibition," American Economic Review, American Economic Association, vol. 81(2), pages 242-47, May.
  2. Motta, Massimo, 1997. "Advertising Bans," CEPR Discussion Papers 1613, C.E.P.R. Discussion Papers.
  3. Gary S. Becker & Michael Grossman & Kevin M. Murphy, 1990. "An Empirical Analysis of Cigarette Addiction," University of Chicago - George G. Stigler Center for Study of Economy and State 61, Chicago - Center for Study of Economy and State.
  4. Frank J. Chaloupka & Henry Wechsler, 1995. "The Impact of Price, Availability, and Alcohol Control Policies on Binge Drinking in College," NBER Working Papers 5319, National Bureau of Economic Research, Inc.
  5. Jeffrey A. Miron & Jeffrey Zwiebel, 1995. "The Economic Case against Drug Prohibition," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 175-192, Fall.
  6. Michael J. Moore & Philip J. Cook, 1995. "Habit and Heterogeneity in the Youthful Demand for Alcohol," NBER Working Papers 5152, National Bureau of Economic Research, Inc.
  7. Becker, Gary S & Murphy, Kevin M, 1988. "A Theory of Rational Addiction," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 675-700, August.
  8. Grossman, Michael & Chaloupka, Frank J & Sirtalan, Ismail, 1998. "An Empirical Analysis of Alcohol Addiction: Results from the Monitoring the Future Panels," Economic Inquiry, Western Economic Association International, vol. 36(1), pages 39-48, January.
  9. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
  10. Frank J. Chaloupka, 1990. "Rational Addictive Behavior and Cigarette Smoking," NBER Working Papers 3268, National Bureau of Economic Research, Inc.
  11. Manning, Willard G. & Blumberg, Linda & Moulton, Lawrence H., 1995. "The demand for alcohol: The differential response to price," Journal of Health Economics, Elsevier, vol. 14(2), pages 123-148, June.
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