Repeal of Prohibition: A Benefit‐Cost Analysis
12 Pages Posted: 8 Nov 2014
Date Written: January 2015
In spite of an estimated increase in annual alcohol‐related motor vehicle costs of $2.767 billion (1947 dollars), the net social benefit of repeal of alcohol Prohibition amounts to $432 million per annum in 1934–1937, about 0.33% of gross domestic product. Total benefits of $3.25 billion consist primarily of increased consumer and producer surplus, tax revenues, and reduced criminal violence costs. A Monte Carlo simulation shows the probability of negative net benefits is 16%. The estimated price elasticity of demand for spirits, beer, and wine are –.60, −.56, and –.51 respectively, which is consistent with the modern literature.
JEL Classification: D61, I18, K420, I120
Suggested Citation: Suggested Citation