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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.