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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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    References listed on IDEAS

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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 242-247, May.
    2. Massimo Motta, 2013. "Advertising bans," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 4(1), pages 61-81, March.
    3. 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.
    4. Chaloupka, Frank, 1991. "Rational Addictive Behavior and Cigarette Smoking," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 722-742, August.
    5. 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.
    6. Becker, Gary S & Grossman, Michael & Murphy, Kevin M, 1994. "An Empirical Analysis of Cigarette Addiction," American Economic Review, American Economic Association, vol. 84(3), pages 396-418, June.
    7. 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.
    8. 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.
    9. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
    10. Mark Thornton, 1994. "The economics of prohibition," Chapters,in: The Elgar Companion to Austrian Economics, chapter 51 Edward Elgar Publishing.
    11. 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.
    12. 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.
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    Cited by:

    1. 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.
    2. Kenneth W. Clements & Xueyan Zhao, 2005. "Economic Aspects of Marijuana," Economics Discussion / Working Papers 05-28, The University of Western Australia, Department of Economics.
    3. Angela K. Dills, 2004. "Alcohol Prohibition and Cirrhosis," American Law and Economics Review, Oxford University Press, vol. 6(2), pages 285-318.
    4. 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.
    5. 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), June.
    6. 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.

    More about this item

    JEL classification:

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

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