Aug 25 2008

Britain’s largest export: “inebriated hooligans”

10 Responses to “Britain’s largest export: “inebriated hooligans””

1. # Horia Stanescuon 27 Aug 2008 at 4:52 am

   A very interesting article and a nice way to tie in youth culture with economics mechanics. There’s no reason not to judge alcoholic beverages and the consumption of alcoholic beverages as a market failure. This market failure type can be classified as a Moral Hazard. In other words, the individual is not provided incentive to take socially efficient preventive measures. The incentive is provided, however, for the person in question to go on such booze-trips by cheap airlines and the minimal costs of the actual purchase of the alochol (four drinks and two shots for $8, less than one pint in London). Because this is the only method of intoxication which is protected by law, individuals are provided a great incentive to exploit this to its limits. Of course, the cultural factor must not be forgotten: British drinking culture is a very deep-rooted and praised amongst its users: try sending a group of 10 twenty-year old Iranians to the same location and see how much they drink after growin up in their own culture.
   If the local governing bodies would want to reduce these number of incidences it would be a very simple matter of altering or creating new legislature and enforcing it (ie. no more than 2 drinks per person in one night, blood-alcohol level limits and random breathaliser tests with scaling penalties etc.) or the introduction of a indirect tax or that of a minimum price for the selling of alcoholic beverages. However, this would impact other turistic businesses so greatly, it would effectively ruin the economy of the region as there are no other businesses people can easily shift into in Crete.
   This does mean, however, that there is an unfair distribution of taxpayer’s money across the nation. A large pub owner will have both the requirement and availability of government-provided services a much larger proportion of time than a rural family in Crete. The bar and pub proprietors will thus be able to rely on the police and medical services at no cost to be there to serve his customers if the need would arive. There already are over 20 officers placed on a 1000 foot long strip. This means that if you were to walk 15 meters in either direction you would be faced by a police officer. Comparing this to police activity in a village in the middle of Crete, we would see why this is an unfair (but not unnecessary) distribution of goods. As such, the private cost to run such a bar or pub in no way reflects the social costs. Not only are people more at risk of violent crime and disturbances from these hooligans, but the public resources which could become critical in a different location on the same island are being spent to supervise the big-spenders making trouble in turistical locations.

2. # Joelon 27 Aug 2008 at 5:51 am

   I would agree that alcohol consumption could be classed as a form of market failure. To be specific, it is a negative externality in consumption. This means that a good, such as alcohol, is being overconsumed below the social optimum, and is causing negative spillovers in consumption, such as widespread drunkenness, crime, and in the worst cases death due to overconsumption.

   One economic action which the government could take would be to levy a high tax on alcohol, directly proportional to the externality or the social cost. This would provide a financial disincentive for the consumption of alcohol. If we were to argue that alcohol is price inelastic, the burden of the tax should lie principally on the consumer, in this case young British partygoers. As opposed to legislation, this measure would be fully enforcible. However, to evaluate this measure in greater depth, if the tax would indeed be effective and would successfully decrease demand, then local business could suffer. Lower demand for alcohol would mean less revenue.

   However, in my view, this measure would fully justified in relation to question 3. Tourist businesses are profiting at the expense of the taxpayer, and the private cost of running these does not reflect the sometimes horrific social costs. For instance, the government has to pay for advertising campaigns to lower demand, and for healthcare (which is “free” in Spain, and state sponsored) whose resources are taken up by drunken Brits. A tax would provide the government with extra revenue, compensating the budget for the expenses incurred by inhebriated Brits. As for the businesses who would be hit by the tax, their private costs would merely reflect the social cost. Consumers would buy less alcohol, and therefore the existence of the negative externality ie. the drunkenness would decrease.

   Bottom line: Alcohol is too cheap. Brits are getting too drunk. Tax it.

3. # Alex Telfordon 27 Aug 2008 at 6:02 am

   The British misbehaving while on holiday is not a new thing, several years ago they were voted “the worlds worst tourists” coming bottom on on scale which took rudeness, meanness, behaviour, adventurousness and language skills into account.

   Like horia, I would say that over consumption of alcohol is an example of market failure, as the social costs associated with the consumption of alcohol are large, leading to tens of thousands of preventable deaths yearly and contributing significantly to health problems in chronic drinkers.

   If tourist nations were serious about reducing alcohol consumption they would have several available options; negative advertising as mentioned in the article is one option, but a more effective option which was mentioned by Horia would probably be to introduce an indirect tax onto alcohol, raising the price significantly could make the cost of more than two or three drinks per night prohibitively expensive to most holiday goers, and noticeably lowering consumption as a result. Although raising the cost of alcohol could have a very negative effect on the tourism industry, it is likely that an important reason for traveling abroad for some tourists would be cheap alcohol and nightclubs. It is very possible that raising prices would dissuade tourists with less disposable income from traveling, and therefore substantially cutting down service industry profits during the vital tourist season. Even if the price of alcohol was increased it is likely that they would be driven down again as other tourist locations lowered prices in order to draw in customers. I believe the best options for controlling the problem would either be extensive negative advertising campaigns, or severe fines and penalties for those caught breaking laws while under the influence of alcohol, these could act to reduce the incidence of heavy drinking related issues by providing a disincentive to overindulge without causing a rise in alcohol prices and scaring away consumers as a result.

   I would imagine that running a bar in a location like Greece would not be very expensive, and during tourist season bars, nightclubs and restaurants can be fully loaded with foreign customers and the potential for massive profits are high. Although, however cheap it may be to run a bar in Greece, the additional social costs not covered by the bars expenses can be very high. Accidents, arrests, damage to property etc. is common in such areas, causing a disproportionate amount of tax money to be spent in areas that deal with tourists, as police and ambulance squads must be ready for potential mishaps, as horia insightfully mentioned the presence of police officers may be extremely imbalanced. Local residents of the areas swamped by tourists for several months a year may be irritated by their presence, small local businesses could be driven out by the arrival of more popular big chain establishments, turning once diverse areas into homogenized tourist-y resorts and perhaps casting out tradition and culture in the process.

4. # Sean Isaacson 27 Aug 2008 at 6:09 am

   To add to what Joel and Horia have already said, there can be ways in which to cut down on alcohol consumption without too much of an opportunity cost. For example having Hotels specifically designed for people who like to go clubbing, so that they can waddle from the dancefloor to their bedroom floor after a night dancing and drinking. This way the contact with other people is avoided and the externality decreases. Additionally, places where drunken behaviour would be inappropriate (such as family restaurants or public areas) could provide a drink limit, or limit the volume of the spirits they sell, say anything under 15%. Both these methods would still allow for tourism of this type to occur, whilst preventing the negative effects of it from being too extreme.

5. # Joelon 27 Aug 2008 at 5:05 pm

   While I think Sean’s idea about drunk-fitted Hotels is an innovative one, it would surely decrease the capacity of hotels, and therfore drive up costs for businesses (as land costs money)

   As for the regulation on spirit levels, I would have to argue that people would simply drink more, and while contributing to business, would still incurr the same social costs.

6. # Matteoon 28 Aug 2008 at 1:40 am

   I do not think there is much to add upon the externalities issues that alcohol consumption creates or I would be simply repeating one more time what said above by the others. Although i have a few comments and suggestion to make. I think Sean’s idea is suitable in order to still allow British rude tourists to drink and party, and at the same time not deprive Spain, Greece etc from receiving the income they see entering every year from the huge mass of British tourist that arrive on their beaches,clubs and consumer their alcohol. Although as Joel said this could cause the capacity of hotels to decrease and therefore drive up costs.

   If you ask me, the best idea is an increase of the Police forces and have a review of the laws, or even have the government of these countries make new laws, in order to increase the severity of the punishments for all the crimes related to the behaviour that those tourists have shown. We can take England as an example.

   The huge problems of Hooligans were solved in a similar way in England. By introducing Stewarts, by increasing the organization of police around stadiums, and by the introduction of new laws for those who did not behave on sundays.

   Regulating spirits levels definatly wouldn’t work since as Joel said those people would simply drink more.

   If instead a much more organized police force would be on the field, this would allow security to increase, and at the same time increase the states revenues thanks to the money payed in fines by those who still do not respect the law

   This would allow local businesses to keep running smoothly (what would not accour if a high tax on alcohol would be put in place), and at the same time see an overall higher security, wellbeing for the locals, and for the other turists.

7. # Jean Kiekelon 28 Aug 2008 at 3:45 am

   Jason, thank you for posting this site to the AP listserv. I will be directing my students to your articles and analyses. This article and graphic explanation of spillover costs and benefits is something that students should find easy to understand and much better than McConnell’s long-winded explanation in the textbook. It will be something that the students should also be able to relate to than some of the examples in the book. Your blog is fantastic.

8. # Wilhelm Nykoppon 28 Aug 2008 at 4:23 am

   I found the article to be pretty interesting, had never thought of drinking being a negative externality in consumption. It is pretty obvious though, having been to a few tourist resorts, and seeing some of the tourists whose aggressive drinking had become a social problem. This was resolved by two hotel employees escorting the inebriated group out. While this in no way solves the problem, it did offer a kind of band-aid solution, moving the social cost away from us, and onto someone else.

   I disagree with Joel’s point of taxation on alcohol from first hand experience; Finland implemented a very high tax on not only stronger liquors, but also beer. A poll the following year examining the reduction in alcohol consumption was quite shocking; it had not reduced the amount of alcohol people were drinking by more than a percent or two. Last year, the government reduced the taxation on alcohol again, as the population had gone from purchasing their alcohol from a store to importing it from, for example, Estonia. This meant that their revenue from alcohol had not increased. These two factors combine to show that increasing taxation was truly the opposite of what you stated, as it was ineffective.

   Sean’s idea of localizing the damages on the other hand, would work better to reduce the social cost, but not by much. While the tourists would now be isolated to certain locations, violence and such could still occur, but possibly to a smaller extent as they would not “waddle” through someone’s private property.

9. # Joelon 31 Aug 2008 at 9:43 pm

   What Wilhelm said is an interesting revelation. He mentions that a tax, bringing up the price of alcohol, brings about a minimal or negligable response in the quantity consumed. I think we can therefore determine that alcohol is Price inelastic.

   However, I would just like to float the idea that there is a possibility that alcohol too could be a giffen good. It is possible that even with a tax levied on it, alcohol still represents a small proportion of people’s income. To add to this, the private benefits of consuming alcohol in certain societies may be so high (in England it is simply part of the culture that you go “down the pub with ‘yer mates”) that an increase in price does not serve as enough of a disincentive to outweigh those private benefits.

   In light of Wilhelm’s evidence, I can only propose that the tax be made so high that alcohol becomes a luxury good. However, for any government taking this measure there would undoubtedly be severe political repurcussions (especially in England).

10. # Wilhelm Nykoppon 03 Sep 2008 at 3:30 am

    Joel I really don’t think absudly high taxes will work for two reasons:

    1. Prohibition failed
    2. No politician could support it without almost losing their jobs (popular opinion would definately be against it.

    Interesting how politics affect economics, and how they can do the opposite of what many are meant to do; as they stop the market from reaching equilibrium

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