Virginia Direct to Consumer Legislation Benefit to Consumers
Or how the United States Constitution restricts the joys of California sunshine.

This is a work in progress.

Executive Overview

Allowing wine to be shipped directly to consumers from out of state suppliers creates a net present value of $89.1 million for Virginia citizens. The benefits to consumers far outweigh costs, loses, to instate producers. Externality costs imposed by increased wine consumption, such as increased alcohol related vehicle incidents, are unable to be teased out of year to year variance and are assumed insignificant.
 

Virginia Direct to Consumer Cost Benefit Analysis

Virginia allowing consumers to directly purchase wine from out of state producers generated benefits that far outweighed costs. Care should be taken in noting that the benefits were diverse among to many consumers within Virginia while the costs were concentrated to the few instate producers and retailers.

We use a policy change in the State of Virginia to map a demand curve and calculate the change in consumer benefits. We find that yes, people do enjoy a good glass of wine, and make a weak claim that the loss in producer surplus combined is far less than the benefits enjoyed by consumers. Virginia allowing for direct to consumer shipment of wine, for this generation, produces a net present value of $89.1 million. The finding should not be found as conclusive, and the magnitudes looked upon with circumspect, as they are subject to a high degree of error given the limited data. However, the framework provides a way to expand and build upon the analysis by increasing the scope of reference both with time and by geography.

Background

One of the motivating factors for a central governance during the creation of the United States of America was the desire for the elimination of restrictions and tariffs upon trade between states. This can be duly noted by the inclusion of the interstate commerce clause in the 8th section of the 1st Article of the United States Constitution. The commerce clause prohibits states from discriminating against residents or products from other states. These lowered barriers to trade are often taken for granted when placing an order online for a product several state lines away.

As with most rules, there are exceptions. The 21st Amendment was enacted to end prohibition set forth by the 18th Amendment and close out a grand experiment of perverse incentives. Alas, celebrations perhaps began to early, as the second section would setup concentrated benefits and diverse costs at the state level that still remain in place to this day.

The second section allows for states to restrict imports or apply tariffs on alcohol from other states. Of the various type of alcohol, wine tends to be geographically centered to specific climates. This is due to a combination of transport costs, degradation rates of grapes vs grain, and the type of environments conducive to growing. A Napa winery cannot easily move it's production to Virginia and ship grapes across the US from California. Rather, the completed bottled product is the preferred method of shipment. This creates an imbalance between large and small wine producers where each can wield political force in their respective states. By 1986 direct shipment of wine to consumers was a misdemeanor crime in 46 states. This lead to California enacting reciprocity legislation, which carried weight due the states relatively large wine consumption and production base. Naturally,  a series of trade wars broke out with some states responding by relaxing constraints while other strengthened. Within this evolving mix of regulations the state of Virginia removed its restriction on direct to consumer shipment of wine in 2003.

Data
Wiseman and Ellig conducted studies of 2002 and 2004 wine prices in Virginia to see the effect of allowing direct to consumer shipping of wines. They found the Alchain-Allen effect held, in which the quality of goods raises the further it is shipped. This study takes the price findings and uses them to determine the consumer benefits. National Institute of Alcohol and Alcoholism provides data on the quantity of wine consumed within Virginia. An assumption is made that consumer tastes and preferences did not change between 2002 and 2004 with regards to wine drinking. That is to say that the demand for wine remained relatively stationary whereas the supply of wine increased due to the relaxation of interstate trade barriers. The change in quantity consumed is assumed primarily a result of a supply shift.

Costs
Panel data set of vehicle related crashes within a state based upon state population and respective consumption per capita for years from 2000 to 2005.
Counter intuitively, increased wine and spirit consumption is related to decreased deaths.