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<p>Prohibitions result in black market activities. Following the work of Paul &amp; Wilhite (Pub Choice 79: 105–115, 1994), if the situation is right, the result is the monopolization of the market by the firms acting within the market. The resulting social cost of monopolization, however, is larger than standard deadweight loss and Tullock (West Econ J 5: 224–232, 1967) rectangle because the rent seeking takes a violent form resulting in negative externalities for the rest of society. Black market firms are often not characterized by successful monopolization, but when the context is right the rent seeking created by the illicit trade increases the social costs. This paper illustrates this theory with the historical case study of Rum Row, an area off the coast of New York where foreign-produced liquor, particularly whiskey, was smuggled in during America’s experiment with Alcohol Prohibition. Firms along Row Rum, by 1924, had become fewer and larger and used violent means to keep out smaller competitors. The results created rent seeking activities that took the form of collusion with the Coast Guard and violence against smaller competitors.</p>

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Rent seeking on Rum Row

  • 期刊论文

  • 发表日期：

    2025年1月9日

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  • Nicholas A. Snow

摘要

Prohibitions result in black market activities. Following the work of Paul & Wilhite (Pub Choice 79: 105–115, 1994), if the situation is right, the result is the monopolization of the market by the firms acting within the market. The resulting social cost of monopolization, however, is larger than standard deadweight loss and Tullock (West Econ J 5: 224–232, 1967) rectangle because the rent seeking takes a violent form resulting in negative externalities for the rest of society. Black market firms are often not characterized by successful monopolization, but when the context is right the rent seeking created by the illicit trade increases the social costs. This paper illustrates this theory with the historical case study of Rum Row, an area off the coast of New York where foreign-produced liquor, particularly whiskey, was smuggled in during America’s experiment with Alcohol Prohibition. Firms along Row Rum, by 1924, had become fewer and larger and used violent means to keep out smaller competitors. The results created rent seeking activities that took the form of collusion with the Coast Guard and violence against smaller competitors.