Repeal of Prohibition: A Benefit‐Cost Analysis

12 Pages Posted: 8 Nov 2014

See all articles by Donald F. Vitaliano

Donald F. Vitaliano

Rensselaer Polytechnic Institute (RPI) - Department of Economics

Date Written: January 2015

Abstract

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

Vitaliano, Donald F., Repeal of Prohibition: A Benefit‐Cost Analysis (January 2015). Contemporary Economic Policy, Vol. 33, Issue 1, pp. 44-55, 2015, Available at SSRN: https://ssrn.com/abstract=2520678 or http://dx.doi.org/10.1111/coep.12065

Donald F. Vitaliano (Contact Author)

Rensselaer Polytechnic Institute (RPI) - Department of Economics ( email )

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