Alcohol outlets, licence objections, and the problem of public goods

When the Sale and Supply of Alcohol Act 2012 came into effect, it gave local communities more say over the granting and renewal of licences for alcohol outlets in their areas. Specifically, those people (or organisations) with "a greater interest in the application... than the public generally" can object to the granting or renewal of a licence. Most people I spoke to in the lead-up to and after the introduction of the new law expected a significant increase in the number of objections to licences. However, with some notable exceptions, this hasn't proven to be the case.

To understand why, we need to think a little bit about public goods. Public goods are goods that are non-rival (where one person using them doesn’t reduce the amount of the good that is available for everyone else) and non-excludable (where the goods are available to everyone if they are available to anyone). The problem with public goods is that it is difficult to incentivise a private party to provide them. This is because, while the provider would face all of the cost of providing the public good, they would receive only a tiny part of the benefit of it themselves. And, on top of that, because the public good is non-excludable, they couldn't stop others from benefiting from it, even if those other people didn't contribute towards the cost.

Coming back to objections to alcohol outlet licences, an objection to a licence application or renewal is a public good. It is non-rival (one person objecting to the licence doesn't prevent other people from also objecting), and non-excludable (if one person objects to the licence, then every person potentially benefits from the objection [*]). On top of that, the objector faces the full cost of presenting their objection to the licence, but the benefits may be spread over many people.

It is this last point that creates the problem for objectors. Writing a letter to object to the granting of an alcohol outlet licence is fairly low-cost, but that is only the beginning of the process. If a licence is opposed, the relevant District Licensing Committee is bound to send the application to a public hearing. If the objector fails to appear at the hearing, then their objection will carry little weight in the Committee's decision-making. So, if the objector really wants their objection to count, they must face the cost of attending the hearing. That might include time spent preparing for the hearing, collecting evidence, finding witnesses, as well as the opportunity cost of foregone income (for working people) for the time spent at the hearing itself.

In most instances, the benefits for any individual of a licence not being granted are likely to be relatively small. Maybe they gain a bit more peace and quiet, or cleaner streets, or fewer drunken hooligans around their property. And those benefits are uncertain, because there is a chance that, in spite of the objection, the alcohol licence or renewal application is granted anyway.

An individual (and rational) potential objector would weigh up those benefits against the cost of mounting an objection, and would only object if the benefits were greater than the costs. Given the small (and uncertain) benefits, it should be no surprise to anyone that there have been few individual objectors to alcohol licences (and, where there have been individual objectors, they have often been severely impacted (or believe they will be severely impacted) by the alcohol outlet.

However, that calculus largely ignores the fact that many people might benefit from licence not being granted (or renewed). Individually, the benefit-cost calculation for each of those people might mean that costs exceed benefits for every one of them. However, the benefits to the community as a whole might exceed the costs of objecting to a licence.

With that in mind, we would expect to see more opposition to alcohol licences when the community can organise itself collectively to oppose the licence, or where there is an interest group or a politician that feels the need to represent the community's interests. In the former case (the community collectively), the benefits of the community as a whole matter to the evaluation of whether the benefits of the objection outweigh the costs. In the latter case (interest groups or politicians), the benefits to the interest group or politician (maybe a 'warm glow' benefit, or an increased chance of electoral success) might outweigh the costs of the objection.

In fact, I believe that is what we see. Most often, if a licence application is opposed, it is by an interest group or a politician, rather than an individual. [**] For instance, consider this current case in Flaxmere:

While the application, submitted by directors Sukhpal and Chamkaur Singh had not been opposed by police or the Hawke's Bay District Health Board, Hastings councillor for Flaxmere and Hastings Ambassador Henare O'Keefe argued to the contrary.

He gave an impassioned plea for ARLA to "listen to the cry of the people of Flaxmere", noting the effects of liquor have created an "alcohol Holocaust" in the suburb.

And this example in Johnsonville (Wellington), opposed by the mayor:

The application to open a liquor store in Johnsonville next to a Work and Income office has attracted 17 submissions...

But Mayor Justin Lester, who lives in Johnsonville with his family, has weighed in.

He has submitted against the proposal both personally and in his capacity as mayor.

Although, it is possible for the community to organise against an application, as this example (from the same article as the Johnsonville example) shows:

A proposed bottle store in the Wellington suburb of Khandallah has garnered more than 500 objections - possibly the highest number in the country...

Wellington City Council spokesman Richard MacLean put the strong opposition down to people in Khandallah actively organising against the store.

"This is easily the biggest amount we've had in recent years or indeed in living memory".

Although, it is worth noting that Khandallah has a substantially higher median income (~$47,000 at Census 2013) than Wellington City as a whole (~$38,000), and that might contribute to the ability to organise against a licence application. More on that point in a future post.

Overall, the lesson for an individual objector is not to despair. If you think the cost (in terms of your time and effort) is too much to object to a licence, either find a lot of neighbours to also object (spreading the cost a little, but also increasing the chance of your objection being successful), or seek out a local politician or an interest group to front the cost of the objection.

*****

[*] I say 'potentially' here purposely. Of course, the licence applicant doesn't benefit from an objection (in their role as potential licensee), but they might benefit as a regular person.

[**] Ignoring opposition by the Police, the Medical Officer of Health, or licensing inspectors, each of whom are required to report on every outlet licence application.