Prohibition and Percolation: The Roaring Success of Coffee During US Alcohol Prohibition

ABSTRACT During US alcohol prohibition, 1920 to 1933, alcohol consumption fell dramatically. Less well known is that coffee consumption surged as a legal alternative. Using import data and a variety of textual data, I examine prohibition's impact on demand for coffee and the supply‐side response to the new policy environment. Using the Bai–Perron method of identifying structural breaks and a structural vector autoregression model, this study finds elevated coffee imports during prohibition and immediately after enactment. Evidence from other commodities, shipwrecks, and causal inference using local newspapers indicates that the conclusion of World War I cannot explain sustained greater coffee consumption during prohibition. The results exemplify the role of legal substitutes to prohibited goods, how policy regimes distort consumption patterns, and how industries respond.