3. Surveying the Range of Controls
The likely outcomes of indulgence in vice vary with respect to the vice itself, including its method of administration, the neurochemistry and expectations of the vice consumer, and the social milieu (including the regulatory background) in which the vice behavior occurs: vice, set, and setting, to adapt the renowned triad of Zinberg (1984). In the case of alcohol, for instance, there is variance with respect to potency and type (fermented or distilled), expected behavior under the influence (MacAndrew and Edgerton, 1969) and peer influences on amounts consumed. It is even possible to consume alcohol through modes other than drinking, such as by inhaling alcohol in vapor form. Policy can influence all dimensions of the vice experience, and can attempt to channel vice into those manifestations that offer the best prospects for adding to overall wellbeing.
The daunting variety of available vices complicates the design of vice policy because of the potential for regulation-induced substitution between vices, often in directions that are hard to predict and variable across time and place. A legalization of marijuana might decrease the amount of alcohol consumed. An increase in liquor taxes might spur the consumption of non-beverage alcohol-based substances such as colognes; these potentially poisonous “surrogates” are frequently consumed by alcoholics in Russia (Tomkins, Saburova, Kiryanov, et al., 2007). Vice behaviors also can be complements, not substitutes. Some bars and restaurants report declining alcohol sales following the adoption of public smoking bans; casinos and bingo venues seem particularly susceptible to revenue declines in the face of prohibitions on smoking. At an individual level, co-morbidity is commonplace among vice addicts; for instance, a majority of pathological gamblers suffer from alcohol addiction, too (Zimmerman, Chelminski, and Young, 2006), and it might prove impossible to curb the gambling problem without addressing the drinking problem.
In this section, I will offer a brief survey of the range of vice controls; I postpone to subsequent sections discussion of the desirability of particular regulations.
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 intentionally 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 are accompanied by 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 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 – with the intention, 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. A sort of regulatory compromise might develop, where a casino can operate, but it cannot broadly advertise, or a licensed store can sell liquor, but not publicly declare its 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 theoretical 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 (Cook and Moore 2002), whereas cigarettes are taxed at a level that exceeds expected external costs (Gruber 2002).
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. (And for vices that appeal disproportionally to lower income consumers, the fact that the users themselves are “beneficiaries” of the tax can allay some of the concern with the otherwise regressive nature of the tax.) It has been estimated that the future health costs of smoking a pack of cigarettes might be as high as $32 (Gruber and Köszegi, 2001), and the mortality costs of consuming an alcoholic beverage have been estimated at over $15 (Carpenter and Dobkin, 2011, page 153). Is it likely that smokers and drinkers are fully accounting for these costs when they make their tobacco and alcohol consumption 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. Cigars or pipe tobacco 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 reducing externalities and improving the health of vice participants, but the resulting revenue declines might undermine the political 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 worthy public endeavors, such as higher education. Tax revenues and other economic advantages also can lead to situations where vice is sold, but only to foreigners. Most of South Korea’s casinos, for instance, are off-limits to would-be domestic gamblers; internet casinos legally can be based in Australia, but they cannot offer their services to Australian residents.
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