Richard Wagner's chapter on alcohol and social costs is particularly nice. Important points made there:
- Costs of lost production are internal, not external
- Citing Alan Woodfield's 1986 study, abolition of alcohol abuse would hardly turn alcoholics into people otherwise indistinguishable from the general population
- In a system of private health insurance, health costs also are internal; if insurance companies do not find it worthwhile to adjust premia to reflect additional risks from alcohol use, then there's an externality on other insurance purchasers but not one that can be meliorated at any cost less than the benefit
- It's important to worry about the difference between alcohol being a contributing factor to crime or car crashes and alcohol being a critical factor
- Excise taxes punish moderate drinkers; fines and jail sentences for actually causing social harms is first best and excise taxation should only be considered if it's very very difficult to punish criminals
Moreover, in the presence of a set of efficient penal sanctions, there is no place for corrective taxation. The penal sanctions achieve a cost-effective reduction of drunk driving, or at least have that capability. There is no scope for the taxation of alcoholic beverages to improve matters. In the presence of penal sanctions, excise taxes cannot serve as instruments of correction, but can only serve as instruments for raising revenue. To be sure, it might be argued that existing penal sanctions are not strong enough to achieve efficient deterrence. This argument, however, is a plea for stiffer sanctions, not a call for higher taxation.
I'm going to have to some time replace one week of my current policy issues class with a week on the economics of paternalism....