The DUI Externality

In January, I published “How ‘Market Failure’ Arguments Lead to Misguided Policy.” One major criticism I had of the way “externalities” are talked about in public debate was policymakers ignoring that supposed “corrections” for these “market failures” could induce behaviors with their own external costs.

Consider a bill proposed in the Oklahoma house by Rep. Merleyn Bell (D-Norman).

He is concerned about the costs emanating from driving under the influence (DUI) of alcohol. He wants to raise funds to subsidize deterrents, such as stop-checks on roadways. But rather than raise alcohol taxes, which would affect all consumers, he wants to “price in” the externality by imposing costs on those travelling at times when people are more likely to drink. The way he suggests doing so is baffling, however: adding a 20 percent supplement to rideshare surge pricing for companies such as Uber and Lift. Surge pricing, of course, tends to occur at weekends and after sports events and concerts.

Now, it doesn’t take a genius to work out a big problem here.

Raising the price of using ride-share services will reduce the quantity of ride-share services demanded. On the margin, that probably means fewer ride-share drivers themselves under the influence of alcohol. But I suspect those whose livelihoods depend on driving are among the least likely to DUI in the first place.

No, the overwhelming effect of raising rideshare surge prices will be to deter consumers from using those services. That means those who’ve been out drinking for the weekend will be more likely to drive themselves home or get in the car of someone else who has been drinking, increasing the risk of DUI-related costs and negating any deterrent from the spot-checks.