When Bad Laws Create Good Outcomes: Prohibition Edition

A couple of months ago, Dubner and Levitt wrote about how poorly constructed laws can lead to some unintended consequences. Let me add one more example to their list, albeit one that I’m enjoying.

The Pennsylvania Liquor Control Board was set up in the wake of the 21st Amendment, and the end of Prohibition. A direct (and presumably intended) result is that Pennsylvania has some of the strictest licensing laws in the country, making it painful and costly not only to buy but also to sell liquor.

The market’s response? Given that liquor licenses are so expensive (and licensed restaurants are forced to buy their wine through an overpriced state-controlled monopoly), it just isn’t economic for most restaurants to serve alcohol.

Instead, Philly’s diners are invited to Bring Your Own. While B.Y.O. is common elsewhere (such as in my native Australia), the unique thing about Philly is that unlicensed restaurants aren’t allowed to make any money from liquor-related sales — and as such, they do not charge a corkage fee. Moreover, this isn’t offset by a decline in quality: Philly has an outstanding set of B.Y.O. restaurants.

As a result I both eat out more often, and enjoy wine with my meals more often, than when I lived in wine-crazy San Francisco or Sydney. After all, it’s the law: the law of demand.

And I benefited yet again on Tuesday night. Several restaurants participated in a local food festival, serving tasty morsels in a public square. For $10, I could buy 5 “tickets” entitling me to five small plates of Philly’s finest offerings. Interestingly, only one group was offering its wares for free: the Philly brewery serving locally made beer.

Presumably this reflects the difficulty of obtaining licensing to sell their brews. So the beer tasting was free, and instead of just enjoying one glass with dinner, I may have ended up indulging a bit more, tasting each of their varieties.

A strange postscript to this event: We usually expect prices to equate supply and demand. Yet at 9 p.m., as the food festival was closing down, most of the restaurants charging $2 per plate were out of food, but the brewery still had ample supply, continuing to sell its beer at $0 a pop.


liberalarts

"And perhaps the restaurants could work with the local wine sellers to optimize the experience of their diners!" (@lisastarlight)
"LiaStarLight (#21): That's an excellent idea. Alas, I bet there's some stupid state alcohol law prohibiting that, too. Oh well." (@kent)

Fact: All wine and liquor is sold in state stores, staffed by civil servants. Except for a few monthly specials, prices are quite high.

julie parr

Justin - thanks for the Philly reference here. As a Philadelphia reader, I appreciate the plug for my favorite city.

John M.

Say what you will about the Pennsylvania Liquor Control Board: they offer some of the last DECENT (benefits, pension) jobs left in the country. If I step back a minute from the restricted locations, times, and selections, I'm kinda happy for the employees on the front line.

I live in California now. Our liquor store clerks make $8.00 minimum wage and often are behind one-inch-thick plexiglas sheets. So I think sometimes it's all been worth it in the Commonwealth.

drc

Don't gorget about the Johnstown Flood tax imposed on liquor sales of 18%. They have clearly collected enough tax revenue since 1936 to rebuilt Johnstown into one of the largest cities in the US.

D.B.

I was unaware of the fact that unlicensed Philadelphia restaurants are not allowed to charge a corkage fee. I have been charged a corkage fee in Manayunk (upscale, gentrified area of Philadelphia) and will look into it.

D.B.
Philadelphia, PA

Sweet Pittsburgh

While the LCB is strict on granting licenses to sell and those licenses are quite pricy, this didn't stop a HUGE supply of bars on the South Side of Pittsburgh. I'm often telling people who have never been that a $1 beer is available every night of the week.

I have been watching the Pens/Flyers series in CA with a bunch of flyers fans who are constantly telling me how much a beer cost in their city. That sucks.

Unfortunately, Philly got expensive drinks, terrible sports teams, and all the fat/ugly people!

Matt

$1.10 PBRs at Dee's on the South Side now, thanks to Dan Onorato's 10% drink tax. How that man retains his office, I have no idea.

Let's not praise PA's LCB too much. Its existence is primarily fueled by the lucrative cash it rakes in for corrupt government officials -- who get to accept bribes in exchange for liquor licenses.

This "commonwealth" disgusts me, often.

LiaStarLight

Sounds like a marketing approach for local wine/beer stores. They could stock the menus of their local restaurants, and even perhaps suggest bottles for their diners.

And perhaps the restaurants could work with the local wine sellers to optimize the experience of their diners!

Adrien

I don't know of the legality but in Arizona, I know of restaurants that will give away alcohol for free when they do not have licenses. It is illegal to give away booze to promote sales but if you are not allowed to sell it, you can give it away. As far as BYO works here, cigar lounges work in this manner. Anyone who sells alcohol in Arizona is considered a Bar or Restaurant and therefore cannot permit smoking in public. If you derive your sales from tobacco, you can have a lounge. So if we want scotch or cognac with our puros, we need to bring our own.

Dustin

Come to the South some time: Dry Counties Ahead.

slkinsey

@ Philly Resident - I agree that Philadelphia is a good restaurant town, but suggesting that Center City has a better selection of restaurants than any comparably sized chunk of Manhattan takes hometown boosterism too far. This only holds true if you're comparing Center City to, say, East Harlem

@ dan p, MRP and others - Typically it's simply beverage sales that serve as a profit center for restaurants, which includes wine, liquor, soda, bottled water, etc. But a lot of this perceived profitability only holds up if you consider the markup over cost. That $5 Jack and Coke has to pay for the square footage of the bar (rent, heat, lighting, maintenance, etc.), the bartender and barback, part of the dishwasher, part of the cleanup crew, the glass, the napkin, garnishes and juices, storage of the spirits, licensing, insurance, and plenty of other things before any profit comes out. Figure the food cost on drinks is usually around 20%. Meanwhile, what do you think the food cost is on a $15 plate of spaghetti with tomato sauce? A lot less than 20%, for sure!

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Jrrd

Can anyone recommend a good wine to go with my cheesesteak? (Pat's)

Steve

Coming from Canada, I didn't think that PA's liquor laws were that onerous but I wish I'd known about the BYOB with no corkage! I'd like to see that here. The price of wine in Canadian restaurants is ridiculous.

SK

It makes sense that the free beer never ran out of stock. Possibly the brewery brought extra kegs and did not mind taking the unopened stuff back to their warehouse.
The food vendors can't bring excess food and simply hope they will sell all of it. The leftovers have to be disposed off since that food can't be taken back and sold the next day or week unlike the beer which has a longer shelf life. So the food vendors had to be more cautious with the sales estimation.

dan p

@ MRP and others -

I've always been under the impression that restaurants make their money from LIQUOR drinks rather than wine and/or beer?

A $20 fifth (750 ml) of rum makes a little less than 17 rum and cokes (assuming a standard pour of 1.5 oz - many restaurants use jiggers to make sure of this as well). If we round down to 16 whole drinks and multiply by the $4-5 per drink they charge (lets say $4.50 - which is probably a lot less than a rum & coke in most places)... and thats a profit of roughly $50 per bottle (we'll say the other $2 pays for the coke).

Of course there is also labor, the liquor license, and other overhead costs.... but that's why I've always been under the impression that liquor is where many restaurants make their money. (soft drinks are pretty cheap too)

MRP

I was talking to a friend who was starting a restaurant as he was going through the liquor license step (in Colorado, not PA). I started to complain to him about how I'd love to get wine when I go out for dinner, but I just can't bring myself to pay 2-3x the store cost for the exact same thing. He complained about that too, but said that the with the cost of the liquor license and everything, that he needed to charge 2x cost on wine just to break even and the alcohol was not going to be a profit center for him.

RubyTues

Isn't this a bit like that old fable about banning snakes and getting overrun by rats?

B K Ray

I am willing to be that the bootleggers are still making a killing in the low end.

Philly Resident

I can't speak for the rest of the state, but Philly definitely isn't missing out in the restaurants category. Although I'm sure there are those who would dispute me, I'd say Center City has a better selection of restaurants than any comparably sized chunk of Manhattan. (I'm from North Jersey originally, so I have a fair amount of experience with both) Perhaps this is due to relatively lower rents compared to other similarly-sized high-density cities. (then again, maybe we're just fatsos who love to eat out)

troy

Free beer that isn't sold out? That free beer must've been lousy because it's about the closest thing to free money.