All else constant, a taxable term closest to the external cost is preferred. As external costs by definitionare not market goods as a result of incomplete property rights, a proxy measure has to be used. Excessive alcohol consumption is more highly correlated with E than is all alcohol consumption. But, it is not clear how to measure ‘‘excessive consumption,’’ the measurement costs could be very high, and it is likely that obtaining the required information would run into serious ethical and privacy questions. Another strategy is to tax activities highly correlated with the external cost
activities, such as drunkenness, drink driving and violent behaviour, or drinking in particular venues and times. This targeted strategy requires many taxes for the different outcomes, locations and times, and likely at different rates. Such targeted taxes will entail considerable measurement challenges and costs, they invite tax evasion, and it is likely that some sources of external costs, such as extra health costs, would be missed.