Free-market-based, Minimally-bureaucratic Solution to the New Jersey Liquor License Shortage

D Howitt

Fair lawn NJ, Here’s my free-market-based, minimally-bureaucratic solution to the liquor license shortage.

The issue to be solved is that current restaurateurs typically paid hundreds of thousands of dollars for their licenses, which are a scarce commodity. Issuing new licenses for the same town will drive down existing license values (or even to zero under the governor’s latest proposal). This is unfair to entrepreneurs who have devoted themselves to serving the community — the same spirit we want to encourage!

So here’s what to do.  Just give additional licenses to existing holders. Free!

For example, suppose we wish to double the number of licenses in a town. Just give one new license automatically to each existing licensee. Each new license may be resold. New licenses that come on the market in this way encourage the desired commercial development. They likely also will drive down resale values, making it cheaper to open an establishment, another benefit to the community.

But equally important, existing owners receive recompense for the diminished value of their old licenses. If doubling the supply of licenses drives their value down by half, then each existing owner is made whole. Of course, we don’t know in advance how much new licenses will affect market values. Prices might drop by more or less than half. But the possibility of their going higher than that compensates owners for the risk of them going lower.

A holder could of course decide to use the new license to open another venue, rather than put the license on the market. Fine. If anyone else really wants that license, let that party make an offer the holder can’t refuse.

The ratio of new to old licenses needn’t be 1-to-1. One could, for example, issue half a license to each holder. Then any potential new bar owner would need to buy two half licenses to proceed with serving booze.

A single formula needn’t apply state-wide.  Each town could be empowered to issue new licenses (or fractional ones) in this manner, according to needs decided locally.

By this scheme, the state doesn’t need to undertake any complicated and probably unsatisfactory compensation scheme for existing licensees.  The free market takes care of everything.

 

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