1.1 Project description overview
The project focuses on the cost benefit analysis of the introduction of the new policy in regard to the alcohol consumption and sale regulations. To put it more precisely, the current project focuses on the analysis of cost and benefit of increasing the minimum drinking age from 18 to 21 in Australia. The aim of the new policy is to reduce the consumption of alcohol, especially among the youth to prevent the development of long lasting habits of the alcohol consumption. However, the introduction of the new policy requires the adequate understanding whether benefits of the new policy are worth costs spent on its introduction and implementation. The growth of the alcohol consumption apparently raises numerous risks and threats from the deterioration of the public health to the increase of the number of car accidents and other issues. The increase of the minimum drinking age can potentially reduce such risks and create conditions for the reduction of alcohol consumption in Australia.
1.2 Recommendation based on cost benefit analysis
The cost benefit analysis gives implications to the introduction of the new policy based on the increase of the minimum drinking age because this policy does not require substantial investments as sellers just have to limit their sales to the specific age groups only and exclude the youth under the age of 21. The major cost of the new policy will be the loss of the target customer group for alcohol producing companies and sellers because they will lose customers at the age of 18-20. Moreover, such policy intends to reduce the overall alcohol consumption in a long-run perspective that will likely to have a negative impact on alcohol sale rates. On the other hand, public health benefits, the reduction of cases of alcohol-related accidents and crimes, along with the overall improvement of labour productivity and efficiency due to the reduction of alcohol consumptions are just a few benefits to mention that derive from the new policy and outweigh its costs.
1.3 Supporting reasons for increasing the minimum drinking age
Today, the consumption of alcohol is considered to be a norm, a part of the modern culture. However, often people underestimate the risks accompanying the consumption of alcohol. In fact, the consumption of alcohol is accompanied by a high risk of changes in the behaviour of individuals and, what is more, alcohol produces a number of destructive effects on the human body. The increase of the minimum drinking age can reduce the risk of the growing consumption of alcohol, especially by the youth, while habits shaped in the youth may have long lasting effects on the adult life. This means that once a person starts drinking and consuming alcohol casually, it is difficult to stop, while in the adult life it may be even more difficult to reduce alcohol consumption. In such a situation, the youth at the age of 18-20 is the target customer group that the new policy aims at because the reduction of the consumption of alcohol by the youth is likely to decrease the negative impact of alcohol on their health and, what is even more important, is likely to prevent them from the development of the long lasting habit to consume alcohol in the adult life.
2 General information
The purpose of the new policy is the reduction of the alcohol consumption among the youth above all, while the secondary goal is the overall reduction of the new policy is the reduction of the alcohol consumption in the adult population of Australia in a long-run perspective. The current project focuses on the cost benefit analysis of the proposed policy because the revelation of costs and benefits of the new policy compared to alternatives will help to determine whether the new policy is worth implementing or not.
On analysing the problem of the consumption of alcohol and its impact on consumers, it is important to underline the fact that the consumption of alcohol leads to the development of a strong mental and physiological dependence, addiction, which makes an individual unable to give up consuming alcohol immediately, if he or she has an extensive experience of the consumption of alcohol. To put it more precisely, the consumption of alcohol leads to the development of the physiological addiction of an individual, though initially the consumption of alcohol is motivated by the feeling of euphoria which stimulates an individual to consume alcohol over and over again. Eventually, an individual becomes dependent on the alcohol consumption to the extent that he cannot lead a normal life. Hence, in order to feel relatively comfortable and avoid the abstinence syndrome an individual is forced to consume alcohol.
In such a context, it is obvious that an individual cannot give up consuming alcohol without an external assistance, especially if he has already developed a strong addiction to this product. Therefore, in order to prevent the destructive impact of alcohol on human body and social environment of an individual, his social surrounding, especially family, has to assist him to solve the problem of alcohol dependence. Otherwise, changes in the health and behaviour of an individual can be irrevocable.
In this respect, it should be said that alcohol produces a significant impact on the brain of an individual that leads to behavioural changes. In fact, people, even though they get used to violence or if they tend to violence, can control themselves and their behaviour, when they consume alcohol uncontrollably or excessively. As a rule, the consumption of alcohol leads to the loss of self-control. Moreover, the mood of an individual changes consistently and it is practically impossible to foresee his or her reactions on actions or words of other members of the family (Torr, 2002). The consumption of alcohol makes the behaviour of an individual illogical and he or she can abuse other members of the family without any obvious reason, or simply without any reason at all. Naturally, in such a situation, the risk of the domestic violence increases dramatically.
As a result, it is necessary to remember that the consumption of alcohol often involves more than one person. In practice, this means that parents can consume alcohol together and pay little attention to their children, while the excessive consumption of alcohol can provoke their aggression against their own children or against each other. This aggression can easily provoke violence because of the alcohol consumption, since under different circumstances, i.e. without the alcohol consumption, parents would more likely avoid the violence, while aggression could not be provoked easily at all.
At the same time, alcohol produces particularly negative impact on the human body. People consuming alcohol regularly face the risk of the development of a number of serious diseases. In this respect, it should be said that liver is the probably the first human organ that is under a threat, if a person consumes alcohol excessively. Alcohol produces a destructive impact on the liver. Potentially, the regular consumption of alcohol can lead to the development of such a serious disease as cirrhosis of the liver, which can undermine the health of an individual and without effective treatment can result in the death of the individual. In actuality, the liver turns out to be defenceless in fact of the negative impact of alcohol, which simply destroys the normal structure of the liver and prevents its normal functioning.
In this respect, it should be said that teenagers are influenced by alcohol more substantially than adults. Their body is in the process of formation and, therefore, they are more vulnerable to negative external influences than adults. They cannot resist to the impact of alcohol as effectively as adults do. Hence, smaller amount of alcohol may have more negative impact on teenagers than larger amount of alcohol has on an adult. As a result, teenagers often get drunk faster than adults and they cannot adequately react on the environment and external influences. In such a context, driving becomes practically impossible. At any rate, in such a state, teenagers’ driving is extremely dangerous to teenagers and their environment.
In addition, the excessive consumption of alcohol is one of the major causes of the development of cardio-vascular diseases. In this respect, it should be said that the consumption of alcohol leads to the increasing pressure on the cardio-vascular system because alcohol increase the blood pressure that makes human heart beat faster and gradually leads to the exhaustion of the heart muscle, thinning of the wall of blood vessels and problems with blood pressure. In such a way, alcohol creates favourable conditions for the development of cardiovascular diseases, which are one of the major causes of deaths of modern people.
At this point, it is worth mentioning the fact that some teenagers are predisposed to health problems and cases of cardio-vascular problems are not exceptional in teenagers today. Therefore, the use of alcohol can provoke an unexpected deterioration of the health of teenagers. Their body is in the process of formation and so does their cardio-vascular system. In such a situation, under the impact of alcohol teenagers can faint that increases dramatically the risk of drunk-driving fatalities.
In such a situation, it is obvious that the drunk-driving fatalities can be widely spread among teenagers if this problem is not solved. In this respect, the decrease in the drinking age can reduce drunk-driving accidents. At first glance, it sounds paradoxical, but, in fact, it can have a positive effect on the reduction of drunk-driving fatalities (Blood, 1995). In this respect, it is important to understand causes of drunk-driving fatalities. Firstly, drunk-driving fatalities occur because, if teenagers use their vehicles they cannot refuse from using them even if they drink alcohol (Mosher, 1980). The reason is quite simple since if they do not use their vehicle they are likely to drink alcohol that may cause problems in their relationships with parents. Furthermore, they understand that drinking alcohol is illegal, if the drinking age is not reduced. Therefore, drunk-driving is just another, routine violation of legal norms since teenagers do not feel themselves responsible for their actions. The decrease of the drinking age will make them more responsible because along with the right to drink alcohol at the younger age, they will also feel their responsibility for their actions. Moreover, they are likely to obey to common rules in regard to drinking alcohol and driving. This means that they may follow the example of adults feeling that they are standing on the same ground as adults and their behaviour becomes similar to that of adults. Consequently, they may refuse from driving if they are drunk.
Furthermore, often teenagers’ drunk-driving fatalities occur because teenagers are attempting to escape from police out of fear that the fact that they consumed alcohol will be revealed by police officers (Mendelson and Mello, 1985). The reason of this fear is mainly the legal ban on the consumption of alcohol, while the decrease of drinking age will make them more aware of their responsibilities and their rights. In fact, the decrease of drinking age is likely to develop positive models of behaviour including the possible reduction of alcohol consumption because, if it is not forbidden it is not really attractive to teenagers (Beaudoin, 1997). In addition, teenagers will become more responsible as they will feel that they should act in accordance to laws and, if they are allowed to use alcohol, they are not allowed to drive after that.
Therefore, the introduction of the new policy that aims at the increase of the minimum drinking age may help to address the aforementioned issues that have a negative impact not only on the youth and consumers of alcohol, but also on Australian society and economy. The growing public health costs, accidents and other issues are apparently costly for Australian society and economy. This is why the cost benefit analysis will help to find out whether benefits of the increasing of the minimum drinking age from 18 to 21 can outweigh costs of the new policy.
3 Description of alternatives
3.1 Increasing minimum drinking age
The increase of the minimum drinking age from 18 to 21 intends to cut the youth from the alcohol consumption in Australia. The goal of this policy is to reduce the alcohol consumption not only in the target population, which is the youth at the age of 18-20, but also in the broader customer group, i.e. adults. This policy is likely to decrease the alcohol consumption in adults in a long-run perspective as well because the habit of consuming alcohol is shaped in the youth mainly. The more adult a person is the less likely the person may become addicted or accustomed to the alcohol consumption on the regular basis (). At any rate, adults at the age of 21 and above make their choices more consciously with regard to their health, job and other issues, than the young people, which are actually teenagers in their late teens.
The new policy will affect alcohol manufacturers and retailers because they will deprive them of the target customer group at the age of 18-20, whom they will be unable to sell alcohol at all. The reduction of the customer base will mean possible financial losses, unless companies and retailers increase their sales in other segments of the market, i.e., in adults. Alternatively, retailers and alcohol manufacturers may just raise prices for their products to compensate financial losses from the reduction of their target customer base.
The increase of the minimum drinking age is likely to reduce the negative impact of alcohol consumption on the youth and prevent young Australians from the development of the long-run habit of alcohol consumption on the regular basis. Moreover, such policy may decrease the risk of alcoholism among the youth because such risk is higher in the younger customer group because of their physiological and psychological specificities. To put it more precisely, they do not feel immediate negative effects of the excessive and regular alcohol consumption that triggers the development of alcohol caused by regular alcohol consumption. Moreover, young people are not always aware of negative consequences of alcohol consumption that also increases the risk of the development of alcoholism in this customer group. In such a situation, the increase of the minimum drinking age may help to prevent the risk of the negative impact of alcohol consumption on health of young consumers, their social life and prevent the development of alcoholism.
3.2 Increasing the price of alcohol
Alternatively, the increase of the price of alcohol may also discourage young consumers as well as adult consumers from drinking alcohol excessively and regularly. The policy of increasing the price of alcohol focuses on the broader customer group but positive effects of such policy in regard to the youth are questionable because young Australians will still have access to alcohol. Even if they had to pay the higher price, they would still be able to purchase and consume alcohol freely, if the price of alcohol has increased.
The increase of the price of alcohol elevates economic barriers for consumers but, in such a situation, it is consumers with the low level of income that are basically concerned, whereas other consumers still have access to alcohol and for them it is just the matter of their personal choice whether to buy alcohol or not. In such a context, the overall effectiveness of such policy is questionable, although it is likely to be beneficial for alcohol manufacturing companies and retailers, which can increase their revenues due to the rise of alcohol price, unless taxes become higher and take benefits increased after the rise of the alcohol price.
3.3 Reduction of alcohol sale time/areas
Another option that may lead to the reduction of alcohol consumption in Australia is the reduction of alcohol sale time or areas, where alcohol is sold. In this regard, this policy also involves the broad customer group and goes beyond customers at the age of 18-20. The reduction of alcohol sale time or areas makes alcohol less available, but still does not restrict the overall access to alcohol. Alcohol is still for sale and consumers can buy alcohol, if they really want it. In this regard, consumers at the age of 18-20 remain being vulnerable to the negative impact of alcohol on their health and life.
4 Cost analysis
4.1 Cost of increasing minimum drinking age
The cost of increasing minimum drinking age mainly refers to the reduction of the target customer group for alcohol manufacturing companies and retailers. In fact, costs of the increase of minimum drinking age rather refer to potential profit loss because of the reduction of the customer base for alcohol manufacturers and retailers. Therefore, costs of this policy will be proportional to the share of alcohol consumption by consumers at the age of 18-20, because these consumers will be deprived of an opportunity to purchase alcohol. At the moment, this customer group is quite large but the loss of this customer group will not have a devastating impact on the alcohol industry of Australia. However, in a long-run perspective, revenues from alcohol production and sales are likely to decrease, if consumers do not grow accustomed to alcohol consumption in the youth, as the proposed policy actually expects them to do. Therefore, it will be alcohol manufacturers and retailers that will cover costs of the new policy mainly, because they will suffer from financial losses caused by the reduction of their customer base.
4.2 Cost of increasing the price of alcohol
The cost of increasing the price of alcohol will affect all consumers because they will have to pay the higher price for alcohol. In such a situation, manufacturers and retailers do not increase their costs or spend more on the production or sale of alcohol. Instead, they just raise prices to cover the increased fiscal pressure through which alcohol manufacturers and retailers are traditionally urged to increase their prices. Therefore, ultimately, it is customers who will pay for the increased price and for such a policy. The high price of alcohol will increase spending on alcohol and may have a negative impact on other industries, but such impact is unlikely to be significant and costly because consumers will not spend their last money on alcohol and refuse from goods and commodities they really need, unless consumers become addicted to alcohol.
4.3 Cost of alcohol sale time/areas reduction
The reduction of the time and places, when and where alcohol may be sold will be costly for retailers mainly because they will have to limit the time and areas, when and where they can sell alcohol. For example, some retailers may have to refuse from sales of alcohol, if they are located in the area, where sales of alcohol are banned, for example, if they are located next to schools. Also retailers will be unable to sell alcohol in certain time that may potentially reduce their sales. The physical limitation of alcohol sales may lead to the loss of profits for retailers and alcohol manufacturers, but such reduction may be not as significant as the increase of the minimum drinking age because this measure still does not prevents the youth from buying alcohol. Anyway, in a long run, costs of such limitations may be minimized as consumers just change the time and places, when and where they buy alcohol. In such a way, costs of such policy will be minimal for retailers and alcohol manufacturers, unless they have their stores in areas, where the sale of alcohol is banned. Hence, retailers will have to invest to changing the location, where they can sell alcohol and that part will comprise the main part of their expenses and costs driven by the policy of the reduction of alcohol sale time and areas.
5.1 Benefits of increasing minimum drinking age
The increase minimum drinking age from 18 to 21 will have considerable benefits for the public health because the youth, especially consumers in their late teens, will not suffer from the development of negative habits that involve the regular and excessive consumption of alcohol. In such a way, the public health will benefit from saved costs because consumers, who fail to develop the habit of the consumption of alcohol in the very young age, are unlikely to become alcoholic. Moreover, the level of consumption of alcohol among such customers is likely to be lower compared to customers, who are accustomed to the alcohol consumption at the very young age. As a result, consumers, who has no access to alcohol until the age of 21 are likely to be healthier compared to consumers, who have started to consume alcohol since the age of 18. In such a way, consumers will not develop serious health problems, including chronic health issues caused by their alcohol consumption.
The reduction of public health costs and better public heath will be beneficial for Australian public as well as economy. At this point, it is worth mentioning the fact that economic benefits of the increase of minimum drinking age may be substantial because healthier employees work more productively and more efficiently. The lower level of alcohol consumption decreases the risk of absenteeism and under-performance of employees. Reduced health care costs open opportunities for investments into the economic growth of Australia that will have a positive impact on Australian economy and wellbeing of all Australians.
5.2 Benefits of raising alcohol prices
The policy of raising alcohol prices may also have its benefits. The expected benefit is the reduction of alcohol consumption because of the high price consumers may unwilling or unable to pay for alcohol. In financial terms, benefits of retailers and alcohol manufacturers may increase on the condition that the increased price covers the rise of taxes and reduction of sale rates caused by the increased price of alcohol. Sale rates are likely to drop and the decrease of sale rates will be proportional to the growth of alcohol price. The higher is the price, the less alcohol customers will consume.
5.3 Benefits of alcohol sale time/areas reduction
The reduction of alcohol sale time and areas may be beneficial in terms of the reduction of alcohol consumption, but the problem is that such reduction may be insignificant. Moreover, such reduction is likely to occur in a short run only, because the customer behaviour will change and consumers will simply start to buy alcohol in a different time and places that match existing regulations. Such benefits are short term but benefits of the reduction of the alcohol consumption will be short run.
6 Cost benefit analysis summary
The cost benefit analysis of the three alternatives reveals the fact that the increase of the minimum drinking age is the most efficient policy. The NPV of this policy is the highest because the low costs of the policy bring maximum benefits due to the reduction of alcohol consumption and long-run positive effects of the lower alcohol consumption on the public health and economy of Australia. Hence, this policy has the highest NPV compared to other alternatives discussed above.
The second most efficient policy is the increase of the alcohol price because such policy has also relatively low costs but the growth of the price did not bring considerable growth in benefits, even for alcohol manufacturing companies and retailers because a large part of price growth comprises the increased taxation of alcohol. The rise of alcohol prices limits the alcohol consumption but the low costs of this policy will not bring considerable benefits compared to benefits the increased minimum drinking age policy. In addition, the rise of alcohol price may raise the problem of counterfeit alcohol sales that may lead to the annihilation of benefits of this policy at all.
The reduction of the alcohol sale time and areas is the least efficient in terms of cost and benefit which has the lowest NPV. The low NPV results from the low benefits, which may disappear in the course of time. This policy leads to the increased costs for retailers, while benefits are low. As a result, such policy is the least effective in terms of cost benefit correlation compared to the two other alternatives discussed above.
7 Data issues
Data issues that emerge in the course of the cost benefit analysis of the three policies concerning the alcohol sales in Australia basically refer to the accurate assessment of consequences of each policy because it is difficult to forecast how the customer behaviour may change and what effects each policy brings. In this regard, the major concern in the assessment of the cost benefit effect of the increase of the minimum drinking age from 18 to 21 was the measurement of the market share of this age group because retailers and alcohol manufacturing companies would lose this market share. The assessment of the market share held by the youth at the age of 18-20 allowed measuring the overall costs and effects of this policy on the alcohol market and Australian economy. The growth of alcohol price requires the collection of data concerning the share of tax growth in the increased price and how the increased price effects benefits of retailers and alcohol manufacturing companies. As for the reduction of the alcohol sale time and areas, the major data issue is the identification of customer habits, when they purchased alcohol most frequently and how the change of the time could change their purchase habits. Also it is important to identify all the areas, where the alcohol sale can be banned and how this limitation will affect the alcohol market.
Thus, the cost benefit analysis reveals the fact that the increase of the minimum drinking age will have a positive impact on the reduction of alcohol consumption and minimization of its negative impact on public health and Australian economy. This policy is the most efficient in terms of cost benefit analysis with the highest NPV compared to the two other policies discussed above. The increase of the minimum drinking age would discourage Australians from consuming alcohol in a long-run perspective because they will not acquire the habit of the alcohol consumption in the early age.
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"The terms offer and acceptance." freeessays.club, 17 May 2016