Wednesday, February 10, 2010

Do State Liquour Stores Know How to Profit-Maximize?

Apparently not:
States suffering through tough times are reaching for a tonic.

Lawmakers in several states with tight control of liquor sales are considering legislation that would shift the job to private industry, saving money and raising revenue.
If these governments are running their stores in a profit-maximizing fashion, they gain nothing by selling them off.


Doc Merlin said...

The state is very, very bad at profit maximizing. The incentive structure is all wrong.

Ryan said...

They might be maximizing profit, given the situation surrounding state budgets it might make sense to sell a profitable business. The states are deciding between taking annual profits or the discounted stream of annual profits over a 10 year period.

If investors believe states are not maximizing profits this should increase the sales price. We won't know until 5-10 years if state were not maximizing profits. This move will allow state to improve their budgets now, but this also implies they are being very short sided.

Doc Merlin said...

State liquor stores tend to be really terrible. State monopoly enterprises don't maximize profits because they have a hard time pricing, and because they tend to be very inefficiently run.