Wednesday, March 12, 2014

Draft Two(a), Section 3

3. Surveying the Range of Controls

a. Prohibition

Most vices, including forms of gambling, prostitution, pornography, alcohol, tobacco, and other psychoactive drugs have met with prohibitions at certain times and places, including contemporary times and places. The term “prohibition,” however, can be applied both to very strict and rather lenient regimes, not only because of variation in enforcement and associated penalties but also because of disparities concerning the precise vice-related activity that is prohibited. In the case of a drug, for instance, it is possible that there might be a full range of prohibitions, including bans on manufacture, transport, sale, advertising, purchase, possession, consumption, or even possession of inputs (precursors) or complements to consumption (paraphernalia). National alcohol prohibition in the US (1920-1933) did not involve a ban on purchase or possession, though these behaviors are banned for many of the currently illegal drugs. Sales of cannabis are prohibited in the Netherlands, but a formal non-enforcement policy has opened the door to de facto legal (small-scale) sales. Some countries have followed the lead of Sweden by adopting a prohibition on prostitution that bans the purchase, but not the sale, of sex; this policy reverses what in the past often has been (and in many places still is) the legal situation, where sales of sex are illegal but purchase is legal or informally countenanced.

b. Licensing and other Controls on Manufacturers and Sellers

Vices that are legal (in some manifestations) nonetheless often are highly regulated, and one element of that regulation typically involves the licensing of manufacturers and sellers. Commercial liquor producers, distributors, and retailers, for instance, are licensed in the United States. Lottery providers generally are licensed (or the state operates its own lottery monopoly), as are casinos. Brothels are licensed in those jurisdictions where brothel prostitution is legal, and cigarette sellers tend to be licensed as well.

Seller licensing can serve many purposes. Sales of legal vices often come with a wide variety of restrictions, and the licensing helps to enforce those ancillary rules, as sellers are identifiable and non-compliant sellers can be fined or have their licenses withdrawn. These ancillary rules implicate many dimensions of vice selling. Alcohol sellers face opening hours restrictions and a ban on sales to minors, for instance. Concern with excessive consumption might generate mandatory price floors to preclude prices that are deemed to be too low. Pornographic magazines and other material might not be allowed to be displayed openly, or restricted to adults-only areas of shops. Broadcast television and radio in the US is subject to stricter rules on “indecent” programming between the hours of 6AM and 10PM; other countries also restrict adult content programming to “watershed” hours when children are less likely to be viewing. Seller licensing can also be used to curb the overall prevalence of sellers – again as a measure, perhaps, to dissuade excessive consumption – and licensing facilitates tax collection.

Concerns about the recruitment of children into becoming vice consumers, as well as worries with adult intemperance, sometimes result in restrictions upon the advertising of legal vices. There is a sort of legal compromise: you can operate a licensed casino, but you cannot broadly advertise it, or you can operate a licensed liquor store, but you cannot publicly declare your commitment to low prices. Sometimes counter-advertising, in the form of public service advertisements highlighting the dangers of vice, or in printed warnings on the packaging of substances like alcoholic beverages and cigarettes, also is publicly mandated.

c. Taxation

One of the standard approaches to the correction of externalities is to impose a compensatory tax. The idea is to choose the size of the tax so that the costs imposed upon others are fully internalized by the decision maker. Such a tax, termed a Pigovian tax, perfectly compensates for the original distortion, so that individual rational decision making no longer comes at the expense of the social good. For this reason, there is a strong case for vice taxes to at least cover the average external costs of vice-related behavior – otherwise, vice essentially is subsidized. In the US, alcohol tends to be taxed at too low a level compared to the Pigovian standard, whereas cigarettes are taxed at a level that exceeds expected external costs.

Vice taxes might want to go further, however, and compensate for underrepresented harms to users themselves, along with accounting for external damage. That is, the distinct possibility that individuals might overconsume their vices due to their own rationality shortfalls offers a rationale for tax rates above the standard Pigovian levels. The tax in this case increases the immediate cost of vice consumption, helping to offset the excessive use stoked by present benefits paired with delayed and probabilistic costs. To the extent that such overconsumption (from the point of view of the vice consumer herself) is a problem, taxes actually can make the consumer better off – at least when she looks at her situation from her long-run perspective. It has been estimated that the future health costs of smoking a pack of cigarettes might be as high as xxxx, and the health costs of an alcoholic beverage have been estimated at xxxxx. Is it likely that smokers and drinkers are fully accounting for these costs when they make their tobacco and alcohol decisions?

Taxes can be used to discriminate among modes or forms of consumption; such discrimination might be appropriate given differential external and internal costs associated with the various modes. Distilled alcohol, for instance, can be taxed more highly than beer or wine; on-premises alcohol consumption can be taxed more heavily than package goods intended for off-premises consumption. Loose tobacco for self-rolling can be taxed at lower levels than cigarettes.

The revenue generated via sin taxes itself might become highly valued by those whose budgets are thereby boosted. The result can be a policy-induced ambivalence about vice, where lower consumption might be viewed as desirable in terms of the health of vice participants, but the resulting revenue declines might temper the public interest in promoting temperance. Vice-specific taxes create allies for vice sellers, constituencies that share a pecuniary interest in increased consumption. Sometimes such alliances are created in advance, to promote the legalization of a vice. The introduction of a state lottery, for instance, often involves a promise to earmark tax revenues to a worthy public endeavor, such as higher education.

d. Prescription

Some drugs such as morphine and cocaine have recognized medicinal uses. Even in cases where those drugs fall under a general sort of manufacturing and sales prohibition, they can be made available to appropriate patients via prescription. Complications ensue when: (1) there is severe disagreement about the medical value of the drugs (as seems to be the case with marijuana, which is not legal currently for medical use at the federal level in the US, though medical marijuana is legal under the law of some 20 states); (2) there is severe leakage from the authorized medical supply to unauthorized recreational use, as with some popular painkillers; and (3) the authorized medical use involves treating addiction to the drug or a related drug itself, as with heroin or methadone maintenance for heroin addicts. As many of the harms associated with addiction to a prohibited substance are due to the expense and insalubrious nature of black-market dealings – which include purchasing drugs of unknown purity and potency – the provision of pharmaceutical grade drugs to addicts, in a safe setting, can lower the overall social costs of addiction.

e. Time, Place, and Manner Controls

Just as purveyors of legal vices often are highly regulated, so too vice consumers can face detailed restrictions on the acceptable time, place, and manner of consumption. Cigarette smoking, for instance, is not permitted in many work places and public buildings, and sometimes smoking is forbidden in private automobiles if children are passengers. Public drinking and possession of open alcoholic beverage containers are other actions that commonly are forbidden, though drinking itself is legal. Nudity and obscene speech that is legal in private might be illegal in public. Gambling might be allowed, but not on public transportation.

f. Individual-level Controls

Prescription systems provide drug access on an individualized basis, and a variety of other controls also permit individual circumstances to influence the terms under which drugs are made legally available. One possibility is to permit adult drug purchase and consumption, but to make an adult’s continued legal access contingent on specified types of good behavior. For instance, someone who is convicted of drunk driving or domestic violence might lose the right to consume alcohol. The ban can be enforced by frequent testing or continuous alcohol monitoring technology – an approach which has been used extensively in South Dakota and has spread to numerous other jurisdictions, and can be deployed against other drugs (Kilmer and Humphreys 2013). Enforced vice abstinence might be voluntarily chosen, as with gambling self-exclusion programs. People concerned about their own willpower shortages can then enlist the regulatory regime to aid them in their effort to avoid vice altogether, or to limit it: an exclusion program might allow a loss-limit to be established before entering a casino, or restrict the number of monthly visits to betting parlors, for instance. Exclusions might also derive from sources other than the legal authorities or the vice consumer him or herself: in Singapore and some other jurisdictions, family members can initiate a gambler’s exclusion from casinos. Casinos themselves might choose to make suspected problem gamblers feel unwelcome (Thompson 2010), perhaps under regulatory pressure or as a result of potential civil liability.

Rather than start from a position of general adult availability, from which some people can be forcibly or voluntarily removed, the default position could be no legal access to vice, but with the possibility of opting in (Leitzel 2013). People could apply for a license to consume heroin, for instance, and the conditions under which it is made available can be designed to reduce the probability of the development of compulsive use. And as with exclusion systems, licenses can be withdrawn from consumers who commit crimes under the influence of their drugs. Such a system of positive licensing also puts vice consumers in touch with the regulatory system in a manner that can facilitate their access to treatment resources, should addiction occur despite the safeguards. Individualized systems of alcohol control, such as a person-by-person rationing scheme (with a modest upper limit) in Sweden, were common between the 1920s and 1960s, fell out of favor, but now are seeing new implementations (Room 2012).

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