Much community focus on alcohol consumption looks at adverse health and neuropsychiatric consequences. This ‘gross cost of illness’ approach to estimating the consequences of consumption (Godfrey 2004) focuses on the health costs of excessive drinking, whether this occurs regularly or episodically, and with related dependence issues. There is concern with social problems associated with drinking, in the workplace and home, with crime, intentional cause of injury and with drinking on inappropriate occasions such as prior to driving. Particular attention is directed to youth drinking (RACP 2005; WHO 2004).

This emphasis helps identify health and other cost implications of alcohol consumption but does not help much in designing policy. To what extent should consumption be restricted? What are the costs, in terms of foregone benefits, of restricting consumption?

That drinking alcohol can be risky does not, in itself, imply much about its desirability or the extent to which it should be restricted. The question is how to value associated costs and benefits. Economics does this by assigning monetary values to individual choices and to any consequent costs or benefits that spill over as externalities. Policy then seeks interventions which maximise the difference between social benefits and costs.

Drinkers maximise this difference themselves by making informed choices, provided there are no external costs or benefits. They then both maximise individual and the social advantage. With external costs, however, free markets will not achieve this. A restriction to reduce consumption to the point where net social benefits are maximised then makes sense provided the cost of the restriction is less than the net benefits lost by not employing it, establishing a case for policy activism.

If consumers are aware of risks and costs of activities (whether drinking alcohol, smoking cigarettes, driving a car or bungy-jumping) there is no a priori case for policy restrictions without external costs. Focusing on minimising gross health costs alone suggests extreme, prohibitive policies.

The hypothesis that people make consumption choices rationally, using sound information, can be questioned given the scale of alcohol-abuse issues. Numerous people have self-control problems with respect to alcohol. Others fail to identify harmful consequences of consumption. This provides arguments for better information and for improving decision-making skills.