Endogenous alcohol prohibition and drunk driving.

• Author: Brown, Robert W.

1. Introduction

   Public concern about alcohol abuse has stimulated a considerable amount of federal, state, and local legislation aimed at reducing alcohol consumption and alcohol-related behavior. An extensive empirical literature focuses on the impact of these policies on motor vehicle accidents, the leading cause of alcohol-related deaths. For example, studies suggest that increases in federal or state excise taxes on alcohol discourage heavy drinking and reduce motor vehicle fatalities [3; 6; 8; 11]. State-level legislation, such as minimum drinking age laws or preliminary-breath-test laws, has been shown to significantly lower motor vehicle fatalities [2; 13]. Although local legislation is examined less frequently in the literature, there is some evidence that county-level restrictions on alcohol sales lower the rate of alcohol-related motor vehicle fatalities. Saffer and Grossman [14; 15], Chaloupka, Saffer and Grossman [2], and Wilkinson [17] control for the proportion of a state's population residing in counties where alcohol sales are prohibited and find a negative impact on state-level motor vehicle fatality rates. Winn and Giacopassi [18] report that Kentucky counties which prohibit alcohol sales have significantly lower alcohol-related motor vehicle accident rates. Using county-level data on the state of Texas, Jewell and Brown [7] find that limitations in the number of licensed alcohol vendors could decrease alcohol-related motor vehicle accidents and fatalities.

   All of this literature focuses on the effects of a particular policy - for instance, raising the excise tax on alcohol or reducing its availability - on some measure of drinking and driving, treating the observed policy instrument exogenously in the model. A problem with this approach, however, is that these policies are chosen either through direct referendum or by elected officials who presumably react to the preferences of their constituents. Therefore, failing to account for the public choice determinants of the observed policy introduces a potential bias in the empirical results: Observed variations in alcohol-related behavior may reflect differences in the characteristics of voters, rather than differences in how individuals react to policy-induced changes in their constraints as implied in previous literature. Without accounting for the endogeneity of the observed policy, the researcher cannot distinguish the degree to which the policy itself induces changes in individual behavior.

   Evaluating the effectiveness of a policy requires that the empirical methodology accounts for the collective decision-making process by which the policy is established. This paper provides estimates of the impact of county-level alcohol prohibition on fatal alcohol-related motor vehicle accidents, taking into account the public choice nature of observed prohibition policies. Data on the 254 counties in Texas allow for a unique opportunity to empirically investigate both of these issues. These counties exhibit diverse demographic characteristics and considerable variation in the legalization of alcohol sales; residents in the 53 "dry" counties have voted to prohibit all alcohol sales, while those in the remaining 201 "wet" counties have voted to allow the sale of some form of alcohol.

   Since alcohol prohibition in Texas results from the collective decision-making of the county electorate, the median voter model is a convenient framework in which to examine the determinants of prohibition legislation. Whether alcohol prohibition, in turn, impacts alcohol-related motor vehicle fatalities is determined by the sensitivity of alcohol consumption to changes in the full price of alcohol, which includes the dollar price of alcohol plus the travel cost associated with acquiring alcohol. Prohibiting alcohol sales in a county raises the travel-cost component of the price of alcohol; if consumption is sufficiently responsive to this full price increase, then fatal alcohol-related motor vehicle accidents should decrease. Alternatively, if alcohol consumption is insensitive to changes in the full price of alcohol, then prohibition only increases the distance consumers must travel to acquire alcohol and, therefore, may actually raise the risk of being involved in a fatal motor vehicle accident.

   The paper proceeds as follows. First, we apply the median voter model to investigate a county's choice to prohibit alcohol as a function of the characteristics of its electorate, such as religious affiliation, race, political ideology, alcohol availability in surrounding counties, and other economic factors. Our results show that there are characteristic differences between wet and dry counties, indicating the importance of accounting for the public choice nature of a policy when assessing its impact on alcohol-related behavior. Second, we estimate the effect of alcohol prohibition on fatal alcohol-related motor vehicle accidents using a two-stage estimation to correct for the endogeneity of the observed prohibition policy in a county. Finally, the two-stage estimates are compared with those in which the observed prohibition policy is assumed to be an exogenous event. In general, treating prohibition legislation exogenously leads to biased estimation of the impact of alcohol restrictions on drinking and driving.

2. The Effect of Prohibition on Fatal Alcohol-Related Motor Vehicle Accidents

   We assume that an individual derives utility from some composite choice of consuming alcohol and driving, either directly or indirectly as inputs into some final good such as entertainment. The costs of drinking and driving include the dollar price of alcohol plus the travel cost associated with acquiring alcohol. Beyond some level of alcohol consumption, however, drinking and driving becomes illegal and dangerous, so that the cost of drinking and driving must also include the expected probabilities of being caught drinking and driving as well as being involved in an accident. In this sense, the consumption decision of whether to drink and then drive can be viewed as a demand function for drinking and driving.

   The county-level demand for drinking and driving is a function of the full price of alcohol - the dollar price plus its travel-cost component - as well as income, population, preferences toward alcohol consumption, local driving conditions, and local resources devoted to detecting drunk drivers. Prohibition legislation attempts to reduce alcohol consumption by increasing the travel cost required to acquire alcohol. If consumption is sufficiently responsive to full price increases, then fatal alcohol-related motor vehicle accidents should be lower in...