Minimum prices for alcohol should work
Joan Costa-i-Font 30 June 2014
Addicts may not respond to price incentives as we would expect. This problem, combined with the fear of disproportionally taxing the poor, makes it difficult to address the consumption externalities caused by addictive substances. This column reviews recent literature showing the efficacy of minimum pricing on alcohol, and the curious result that alcohol consumption now seems to be increasing in household income.
Policymaking on addictive substances is a tricky business, since the choices of addicts should not be expected to follow the neoclassical view of consumer choice. The additional problems are many:
- People have limited will power,
- Time preferences tend to excessively favour the short run, and
- Certain social norms can create an unhealthy social environment (e.g., “drinking is cool”, “alcohol is the fast way to relax”).
Under these circumstances, traditional incentives might not work the way we think.
Alcohol consumption, minimum price, public health, consumption externalities