Introduction
Alcohol is extremely prevalent in contemporary society. According to the World Health Organization, in 2005 the per capita alcohol consumption totaled 6.13 l of pure alcohol for every person age 15 and older worldwide. More than a quarter of this consumption is estimated to be from illegal or homemade production and thus not likely to be reflected in standard statistics on alcohol sales. People in the developed world drink much more heavily than people in less developed places such as sub-Saharan Africa. Populations with strong religious prohibitions on drinking (e.g., the Islamic faith) also exhibit much lower drinking rates. Beverage type varies substantially throughout the world: In many European and South American countries, wine is the primary alcoholic drink consumed. In the Western Hemisphere, Northern Europe, and Australia, beer is the most widely consumed alcoholic beverage. For example, in the US a little more than half of total alcohol sales is attributable to beer, approximately a third is spirits, and the remainder is wine. Worldwide, however, nearly half of the total consumption is attributable to neither beer nor wine but rather spirits (which is more common in southeast Asia).
Alcohol consumption has remained relatively stable throughout the world since 1990. With respect to demographic patterns worldwide, men are much more likely to drink and to drink more heavily than women, although it is notable that almost half of all men and two-thirds of all women in the world did not consume alcohol in the past 12 months. Heavy episodic drinking varies substantially across the world in complex ways. For example, it is not always the case that high per capita consumption is associated with higher rates of heavy episodic drinking: Many Western European countries, for example, have very high per capita consumption rates despite having low heavy episodic drinking rates, suggesting that patterns of drinking in those countries are more moderate. Moreover, it is not always the case that higher income countries have higher rates of heavy episodic drinking within a broad geographic area: In Europe and the Americas, for example, heavy episodic drinking is more prevalent in the lower income countries, whereas in Africa and southeast Asia, the relationship is reversed.
Alcohol consumption has both positive and negative aspects. The positives derive from the fact that people enjoy consuming alcohol, moderate alcohol has been suggested to have some health benefits, and there is ample evidence that drinkers earn more than abstainers in developed countries. The most commonly cited negatives include the problem that some of the social aspects of drinking and the direct pharmacological effects of alcohol can lead to a variety of adverse outcomes such as premature death and illness, crime, risky sexual activity, and alcohol dependence. Economists and economics have played an important role in informing the policy and academic debate about alcohol use and alcohol control by providing a conceptual framework for evaluating not only the costs but also the benefits of alcohol use when thinking about optimal alcohol control and by measuring and testing the relationships among alcohol use, alcohol control policies, and outcomes. This article discusses the economics of alcohol use and alcohol control policies and provides a very broad summary of what is known about the causes and consequences of alcohol consumption.
Alcohol’s Pharmacological Profile
A substantial portion of the economics research on alcohol addresses whether and to what extent alcohol causes adverse outcomes such as premature death and morbidity. The most prominent channel through which these adverse events are thought to occur is biological. People’s ‘blood alcohol concentration’ (BAC) from drinking affects their level of impairment. The most important determinant of impairment is the size of the dose. The number of drinks consumed, the speed with which they are consumed, and the alcohol content of the drinks are the major determinants of the dose. Dose size is moderated by numerous individual characteristics. Heavier and more muscular individuals have more water mass and as a consequence will reach a lower BAC than a smaller, less muscular individual who has consumed the same amount of alcohol. Individuals also differ substantially in the rate at which the liver metabolizes alcohol. For example, there is evidence that older individuals metabolize alcohol more slowly than younger individuals and that chronic drinkers metabolize alcohol more rapidly than less frequent drinkers.
Generally speaking, a 160 lb man will reach a BAC of 0.02% (or 2 g per 100 mm of blood) after one standard-sized drink (roughly one shot (1–1.5 oz) of liquor, one 12 oz beer, or one 5 oz glass of wine). That same man will reach a BAC of 0.05%, 0.07%, 0.09%, and 0.12% after two, three, four, and five drinks, respectively, and will accordingly reach increasingly higher BACs with successive drinks (assuming no time between drinks). A similarly sized woman will, on average, reach a higher BAC after the same number of drinks due to sex-specific differences in body composition.
Though the exact level of impairment at a given BAC varies from person to person, intoxication due to alcohol usually follows several stages associated with different BAC levels. At low BACs (below 0.05%), alcohol can induce enjoyment, happiness, and euphoria characterized by increased sociability and talkativeness. Loss of inhibitions and reduced attention are also characteristic of this level of intoxication. At higher BACs (0.06–0.10%), disinhibition is more apparent, as are impairments in judgment, coordination, concentration, reflexes, depth perception, distance acuity, and peripheral vision. Because these impairments can be dangerous in certain environments, many countries set the BAC at which a driver is considered legally impaired at approximately 0.05% or 0.08% (and often lower for younger or less experienced drivers). In the range 0.11–0.30% BAC, individuals experience exaggerated emotional states, including anger and sadness; they may also have a higher pain threshold, reduced reaction time, loss of balance, slurred speech, and moderate-to-severe motor impairment. At extremely high BACs (above 0.35%), individuals are likely to suffer from incontinence or impaired respiration, or they may lose consciousness and even die from respiratory arrest. For lower levels of BAC, many of the effects have been documented in controlled laboratory settings, particularly impairments of driving-related skills and tasks, as well as aggression.
Alcohol’s pharmacological profile is distinct from that of other commonly consumed drugs. Probably the closest to alcohol in its pharmacological effects is cocaine, which has similarly been shown to increase aggression, reduce self-control, and increase irritability. Amphetamines can also produce an increase in aggression; however, unlike the aggression induced by alcohol, it is sometimes accompanied by a paranoid psychotic state that may independently contribute to violent acts. In contrast, marijuana has generally been found to inhibit (rather than promote) aggressive behavior in humans, mice, and primates. Similarly, opiates have been shown to decrease aggressive behavior and hostility in animals and humans, though the period of opiate withdrawal is usually characterized as increasing risk for aggressive behaviors. Thus, alcohol has a pharmacological profile that is significantly different from that of the most commonly consumed illicit drugs.
The differential pharmacological effects of alcohol and other drugs on human behavior raise a potentially important issue regarding the economics of alcohol regulation. Specifically, it is possible that alcohol use is fundamentally linked to the use of other drugs. If alcohol and other drugs are complements in consumption, then an increase in the price of alcohol (through, e.g., stricter regulations) will reduce not only drinking (through the own-price effect) but also the use of other drugs (through a cross-price effect). In contrast, if alcohol and other drugs are substitutes in consumption, then an increase in the price of alcohol will reduce drinking but will lead to an increase in the use of other drugs. Existing research is mixed on this question, but these relationships are important to consider when designing optimal alcohol control policies because the effects of those policies on the use of other drugs – and the independent effects of other drug use on outcomes – need to be acknowledged.