The Political Economy of Moral Conflict: An Empirical Study of Learning and Law Enforcement Under Prohibition

Abstract

The U.S. Prohibition experience shows a remarkable policy reversal. In only 14 years, a drastic shift in public opinion required two constitutional amendments. I develop and estimate a model of endogenous law enforcement, determined by beliefs about the Prohibition-crime nexus and alcohol-related moral views. In turn, the policy outcomes shape subsequent learning about Prohibition enforcement costs. I estimate the model through maximum likelihood on Prohibition Era city-level data on police enforcement, crime, and alcohol-related legislation. The model can account for the variation in pub- lic opinion changes, and the heterogeneous responses of law enforcement and violence across cities. Results show that a 15% increase in the homicide rate can be attributed to Prohibition enforcement. The subsequent learning-driven adjustment of local law enforcement allowed for the alcohol market to rebound to 60% of its pre-Prohibition size. I conclude with counterfactual exercises exploring the welfare implications of pol- icy learning, prior beliefs, preference polarization, and alternative political environ- ments.Results illustrate the importance of incorporating the endogenous nature of law enforcement into our understanding of policy failure and policy success.