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Estimating the price elasticity of demand for cannabis: A geographical and crowdsourced approach
Abstract
Recent legalizations of cannabis at the state level in the United States have given rise to renewed interest in the price elasticity of demand for cannabis and implications for likely state excise and sales tax revenues. We use crowdsourced data on prices, qualities, and consumption of cannabis across regional markets in the United States to estimate the price elasticity of demand for cannabis. We use distances from growing areas to the major markets as a proxy for cost variations. We obtain an estimate of the price elasticity of demand for cannabis of -0.418, which suggests that legalizing and taxing recreational cannabis use would be lucrative for government treasuries.
... Most studies were conducted in a population where cannabis was not legalized for non-medical use (n = 19), some were conducted in legalized environments (n = 9), while other had unknown or mixed legalization status (n = 8). Only fourteen studies Boehnke et al., 2019;Capler et al., 2017;Chait and Burke, 1994;Cole et al., 2008;Gilbert and DiVerdi, 2018;Goodman et al., 2019;Goudie et al., 2007;Halcoussis et al., 2017;Reinarman, 2009;Riley et al., 2020;Shi et al., 2019;Shukla, 2003;Wadsworth et al., 2019;Williams, 2004) explored nonprice attributes, further categorized into the following themes: quality, route of administration, packaging, and product recommendations (Fig. 2). ...
... Many non-price factors were explored in the included studies. These factors have been grouped into the following broad categories: (1) quality (n = 11) (Boehnke et al., 2019;Capler et al., 2017;Chait and Burke, 1994;Cole et al., 2008;Gilbert and DiVerdi, 2018;Goudie et al., 2007;Halcoussis et al., 2017;Reinarman, 2009;Riley et al., 2020;Shi et al., 2019;Vincent et al., 2017), (2) route of administration (n = 3) Boehnke et al., 2019;Capler et al., 2017), (3) product recommendations (n = 1) (Boehnke et al., 2019), (4) packaging (n = 2) Shi et al., 2019), and other (n = 6) ( Table 4) (Boehnke et al., 2019;Capler et al., 2017;Reed et al., 2020;Reinarman, 2009;Shukla, 2003;Wadsworth et al., 2019). ...
... Within the eleven studies that examined perceived cannabis quality, several different components of quality were explored. These include (1) demand elasticity based on perceived quality (n = 5) (Cole et al., 2008;Goudie et al., 2007;Halcoussis et al., 2017;Riley et al., 2020;Vincent et al., 2017), (2) product potency, strain (n = 4) (Boehnke et al., 2019;Chait and Burke, 1994;Reinarman, 2009;Shi et al., 2019), (3) aroma and visual appeal (n = 2) (Boehnke et al., 2019;Gilbert and DiVerdi, 2018), and quality by source (n = 1) (Capler et al., 2017). ...
Introduction:
When non-medical cannabis use became legal, government regulators implemented policies to encourage safer consumption through access to a regulated market. While this market is growing, sales still occur through unregulated channels. This systematic review identifies factors influencing cannabis purchasing to help policymakers understand why consumers still purchase illicit market cannabis (registered with PROSPERO CRD42020176079).
Methods:
A comprehensive search strategy included databases in health, business, and social science fields (inception to June 2020). Studies were eligible for inclusion if they were conducted with persons who purchase cannabis and examine at least one attribute that would influence purchase choice and were published in the English language. Studies could be of any methodological design. Two independent reviewers completed two levels of screening, and all extraction was verified by a second reviewer. A qualitative synthesis of the findings was completed. The quality of the included studies was assessed using the Mixed Methods Appraisal Tool.
Results:
Of the 4839 citations screened, 96 were eligible for full-text review and 35 were included in the final synthesis. Aspects of price were the most common factors (27 studies). Twenty studies measured price elasticity; most studies found that demand was price inelastic. Many other attributes were identified (e.g., product quality, route of administration, product recommendations, packaging), but none were explored in depth. Eleven studies addressed aspects of product quality including demand elasticity based on quality, potency, and aroma. Studies also explored consumer-perceived "quality" but provided no definition; differences in quality appeared to impact consumer choice. Smoking cannabis appeared to be the preferred route of administration but was only examined in three studies. There was insufficient data to understand in the impact of other attributes on choice. There appeared to be preference heterogeneity for different attributes based on the consumer's experience, reason for use, and gender.
Conclusion:
While price influences choices, demand is relatively inelastic. This suggests that consumers may be seeking lowest-cost, unregulated cannabis to avoid reducing consumption. Beyond price, there is a significant gap in our understanding of consumer choices. Perceived quality does appear to impact choice; however, more research is needed due to the lack of a recognized definition for cannabis quality.
... We discuss both the tax structure and the considered rates. We then combine these elements with our estimates of the demand and price (see Section 5), and demand elasticities obtained from other studies (Halcoussis, Lowenberg, and Roof (2017), Riley, Vellios, and Walbeek (2020) and van Ours and Williams (2007), among others). Armed with these elements, we then present our tax revenue estimates. ...
... To do so, we fit a demand curve building upon the estimates of quantities and prices from Sections 5 and 6, and on the price elasticity of demand retrieved from Halcoussis, Lowenberg, and Roof (2017), Riley, Vellios, and Walbeek (2020) and van Ours and Williams (2007), among others. ...
We estimate that the size of the illegal market of cannabis for recreational use in Portugal is between 36 and 58 tonnes;
In the event of cannabis legalisation, we estimate the legal market size to range from 23.6 to 39.3 tonnes (conservative scenario) or reach 51.2 tonnes (optimistic scenario);
Fiscal revenue would be between e52.7M to e70.8M (conservative scenario) or reach e151.3M (optimistic scenario);
Legal cannabis for adult use would create between 1 325 and 6 624 jobs. Those jobs would be associated with a total amount of contributions to Social Security ranging between e0.576M and e2.879M, which add to the tax revenues previously discussed;
These results should be interpreted with caution. The assumptions of this work are extensively discussed below. Any policy proposals based on our analysis should reflect the nature of our assumptions.
... Such research recommends using border interdiction to restrict drug supply, increase prices and so reduce the use [37]. Demand for addictive goods such as cigarettes and drugs tend to be highly inelastic [38][39][40]. In contrast, demand tends to be elastic in the case of normal goods, such as automobiles, or in the case of luxury goods, such as gold or diamonds [41,42]. ...
... Providing another useful comparison, the price elasticity of heroin is reported to be − 0.9 to − 0.8 and that of cocaine is − 0.055 to − 0.36 [39]. In contrast, the price elasticity for marijuana was estimated to be − 0.418 [40]. ...
Background
The long border of Saudi Arabia with Yemen is the primary route for khat entry to the Kingdom. As of April 2015, the government of SA tightened the border, making it more difficult to import khat into the country. As a result, local user prices of khat probably increased due in part to higher supply costs and perhaps lower quantities. One anti-drug strategy is to increase consumption cost by increasing the price of supply. We aim in this study to measure the responsiveness of khat demand to price changes.
Methods
This study used a cross-sectional survey design. Two stage sampling was used to recruit 350 khat chewers from four selected primary healthcare centers in Jazan province (South western province of Saudi Arabia). The data were collected during the first quarter of 2017. This study used both contingent valuation and revealed preference methods to assess the impact of price increases on the purchasing of khat. Graphical analysis, paired-samples t-test, and one-way repeated measures analysis of variance (ANOVA) were used to assess the impact of price increases on khat consumption.
Results
The study results showed a significant decrease in khat consumption amount (t = 8.63, p ≤ 0.05), frequency (t = 30.42, p ≤ 0.05), and expenditure (t = 34.67, p ≤ 0.05) after the tightening of the Saudi–Yemeni border. Hence khat demand is price elastic. The price elasticity of khat demand in Jazan is estimated to be between − 2.38 and − 1.07. Therefore, each 1% increase in price is associated with 1–2% reduction in quantity demanded. This means khat chewers are relatively responsive to price changes (i.e., khat demand is price elastic). Repeated measures analysis of variance showed price increases significantly affect the quantity {F(4, 2.58) = 257, p ≤ 0.05, ηp² = 0.423} and frequency {F(4, 1.83) = 415, p ≤ 0.05, ηp² = 0.543} of khat chewing.
Conclusions
Increased prices for khat would significantly decrease demand. Accordingly, we recommend implementing law enforcement strategies focused on disrupting the khat supply chain to realize high prices and so discourage use, hence reducing the incidence of khat-related illnesses.
... El campo de la economía del crimen vincula un portafolio de actividades consideradas como productos y servicios complementarios y sustitutos, con ofertantes especializados: drogas, armas, tráfico de personas, explotación sexual, juegos ilegales de azar, entre otros; por lo cual, la legislación de estas actividades puede ejercer un rol relevante. Es un mercado que puede asumir competencia imperfecta con presencia de monopolios, duopolios u oligopolios, con características de sensibilidad inelástica de precios (Halcoussis, Lowenberg & Roof, 2017;Skott, & Thorlun, 2002). A nivel macro, existe una hipótesis de mejora generalizada en los agregados macroeconómicos, tales como: aumento del nivel en la actividad económica, aumento del nivel de empleo, oportunidad fiscal para percibir nuevos impuestos y recaudación tributaria, fortalecimiento del turismo, ingresos de divisas, entre otros (Hansen, Miller, & Weber, 2020b;Keul & Eisenhauer, 2019;Wright, 2019;Caputo & Ostrom, 1994). ...
Legalización de las drogas y sus implicaciones para la reactivación económica en Bolivia' 'Drugs legalization and its implications for the Bolivian economic recovery UNIVERSIDAD AUTÓNOMA GABRIEL RENÉ MORENO RESUMEN: En este documento se estima la importancia relativa del 5% del PIB {±1%} de la economía ilegal de las drogas en Bolivia al 95% de confianza. Asimismo, la recaudación tributaria potencial derivada de una legalización representaría entre el 0.5 y el 1.0% del PIB. Los efectos positivos del consumo legalizado de las drogas se verían reflejados principalmente en el resultado fiscal. Un shock positivo de producción de drogas fomentaría al consumo privado, incrementando la inversión pública destinada a Salud y Educación, cuyos resultados se potencializarían con la mejora en la calidad institucional. La tasa de drogadicción representaría un costo social de oportunidad desde diferentes dimensiones. Para ello, se emplea un modelo de equilibrio general, dinámico y estocástico (MEGDE). CONTRIBUCIÓN/ORIGINALIDAD: La contribución del documento se orienta hacía la cuantificación de la participación del tráfico de las drogas en la economía boliviana (Cocaína y Cannabis), así como la recaudación tributaria potencial derivada de una posible legalización. Asimismo, se demuestran los beneficios económicos y costos sociales de oportunidad de la innovación institucional. ABSTRACT: In this paper is estimated a relative importance of 5% of GDP {±1%} for the illegal drug economy in Bolivia by 95% of confidence level. Likewise, the potential tax collection derived from legalization could represent between 0.5 to 1.0% of GDP. The positive effects of legalized drug consumption would be reflected in the fiscal balance primary. A positive drug productivity shock would increase public investment in Health and Education, this results would be enhanced by improving institutional quality. The rate of drug addiction is an opportunity social cost wit has
... El campo de la economía del crimen vincula un portafolio de actividades consideradas como productos y servicios complementarios y sustitutos, con ofertantes especializados: drogas, armas, tráfico de personas, explotación sexual, juegos ilegales de azar, entre otros; por lo cual, la legislación de estas actividades puede ejercer un rol relevante. Es un mercado que puede asumir competencia imperfecta con presencia de monopolios, duopolios u oligopolios, con características de sensibilidad inelástica de precios (Halcoussis, Lowenberg & Roof, 2017;Skott, & Thorlun, 2002). A nivel macro, existe una hipótesis de mejora generalizada en los agregados macroeconómicos, tales como: aumento del nivel en la actividad económica, aumento del nivel de empleo, oportunidad fiscal para percibir nuevos impuestos y recaudación tributaria, fortalecimiento del turismo, ingresos de divisas, entre otros (Hansen, Miller, & Weber, 2020b;Keul & Eisenhauer, 2019;Wright, 2019;Caputo & Ostrom, 1994). ...
Contribución/originalidad:
La contribución del documento se orienta hacía la cuantificación de la participación del tráfico de las drogas en la economía boliviana (Cocaína y Cannabis), así como la recaudación tributaria potencial derivada de una posible legalización. Asimismo, se demuestran los beneficios económicos y costos sociales de oportunidad de la innovación institucional.
... The distinction in perceived quality was important to note, as there appeared to be a lack of a formal definition for cannabis quality both in the literature and within the licensed market. Several studies [16][17][18][19][20] explored the impact of quality on choices, but this term has not been defined in relation to cannabis. Knowing that quality can mean different things to different people means that previous studies tell us little about what specific elements of cannabis quality are important in guiding consumer choices. ...
Background
Cannabis was legalized in Canada for non-medical use in 2018. The goal of legalization was to improve health and safety by creating access to regulated products, with accurate product labels and warnings and no risk of contamination. However, more than 2 years post-legalization, a large proportion of purchases are still suspected to be through unlicensed retailers. This study sought to identify the factors that influenced the purchase decisions of cannabis consumers in Newfoundland and Labrador (NL).
Methods
Semi-structured focus groups and interviews were conducted in NL with individuals who were > 19 and had purchased cannabis within the last 12 months. All sessions were conducted virtually, audio-recorded, and transcribed. A thematic analysis was conducted, and two members of the research team coded the data using NVivo. A combination of deductive and inductive coding was carried out, themes from the literature were identified, and new themes from the transcripts were discovered. A final coding template of the data was agreed upon by the team through discussion and consensus.
Results
A total of 23 individuals (30% women) participated, with 83% coming from urban areas. While all cannabis product types were discussed, the conversation naturally focused on dried flower products. Participants discussed a variety of considerations when making purchase decisions categorized around five broad themes: 1) price, 2) quality, 3) packaging and warnings, 4) the source of the cannabis, and 5) social influences. The price difference between licensed and un-licensed sources was commonly discussed as a factor that influenced purchase decisions. Product quality characteristics (e.g. size, color, moisture content) and social influences were also considered in purchase decisions. Participants were generally indifferent to packaging and warning labels but expressed concern about the excessive packaging required for regulated products.
Conclusion
This study explores the many attributes that influence purchase decisions for dried leaf cannabis. Understanding the drivers of purchase decisions can help inform policy reforms to make regulated cannabis products more appealing to consumers. Further research is needed to measure the effect of each attribute on cannabis purchase decisions.
... The distinction in perceived quality was important to note, as there appeared to be a lack of a formal de nition for cannabis quality both in the literature and within the licensed market. Several studies [27][28][29][30][31] explored the impact of quality on choices, but this term has not been de ned in relation to cannabis. ...
Background: Cannabis was legalized in Canada for non-medical use in 2018. The goal of legalization was to improve health and safety by creating access to regulated products, with accurate product labels and warnings and no risk of contamination. However, more than two years post-legalization, a large proportion of purchases are still suspected to be through unlicensed retailers. This study sought to identify the factors that influenced the purchase decisions of cannabis consumers in Newfoundland and Labrador (NL).
Methods: Semi-structured focus groups and interviews were conducted in NL with individuals who were >19 and had purchased cannabis within the last 12 months. All sessions were conducted virtually, audio-recorded, and transcribed. A thematic analysis was conducted, and two members of the research team coded the data using NVivo. A combination of deductive and inductive coding was carried out, themes from the literature were identified, and new themes from the transcripts were discovered. A final coding template of the data was agreed upon by the team through discussion and consensus.
Results: A total of 23 individuals (30% female) participated, with 83% coming from urban areas. While all cannabis product types were discussed, the conversation naturally focused on dried leaf products. Participants discussed a variety of considerations when making purchase decisions categorized around five broad themes: 1) price, 2) quality, 3) packaging and warnings, 4) the source of the cannabis, and 5) social influences. The price difference between licensed and un-licensed sources was commonly discussed as a factor that influenced purchase decisions. Product quality characteristics (e.g. size, color, moisture content) and social influences were also considered in purchase decisions. Participants were generally indifferent to packaging and warning labels but expressed concern about the excessive packaging required for regulated products.
Conclusion: This study explores the many attributes that influence purchase decisions for dried leaf cannabis. Understanding the drivers of purchase decisions can help inform policy reforms to make regulated cannabis products more appealing to consumers. Further research is needed to measure the effect of each attribute on cannabis purchase decisions.
... The data collected by FixMyStreet have been used to assess locals' perceptions of disorder and fear of crime (Solymosi et al., 2020). Likewise, researchers have used the data collected by the Price of Weed (often through scraping the website) to determine price responses to law enforcement and decriminalization (Larson et al., 2015;Lawson & Nesbit, 2013;Malivert & Hall, 2013), price shifts across a geographic market (Giommoni & Gundur, 2018), and demand and price elasticity (Halcoussis et al., 2017). ...
As the internet has become cheaper, faster, and more widely used, the amount of data generated by people has increased exponentially. Much of the data is provided by users' activities, often mundane tasks, like making purchases, engaging in exercise routines, and consuming streaming content. In some cases, these tasks are leveraged by criminal actors; in others, these tasks include criminal activities. Using data to explore patterns of offending and victimization is critical to understanding crime trends in the digital age. This chapter explores how researchers have used open source data collection techniques and have solicited data using crowdsourcing to develop viable data sets to explore social scientific enquiries. These techniques illustrate that it is increasingly possible to gather and solicit information and analytical help to explore deviance, victimization, social taboos, and behaviors that are often kept out of public view but nonetheless impact society.
Three pillars—harm reduction, demand reduction and supply reduction—underpin the harm minimisation framework of Australia’s drug policy. Much of the activity undertaken by law enforcement is aimed at reducing the availability of illicit drugs and thereby increasing price and reducing demand. This article presents a contemporary, systematic review of research exploring the price elasticity of demand for illicit drugs. Overall, the results indicate that the demand for illicit drugs is, on average, weakly price inelastic—a 10 percent increase in the price of illicit drugs results in a decrease in demand of approximately nine percent. The degree of elasticity varies by drug type, with the greatest elasticity indicated, albeit on a small number of studies, for amphetamine-type substances. The international differences seen point to a need for more Australian research, ideally with robust experimental methodologies and across a range of drug types.
Crowdsourcing platforms provide an affordable approach for recruiting large and diverse samples in a short time. Past research has shown that researchers can obtain reliable data from these sources, at least in domains of research that are not affectively involving. The goal of the present study was to test if crowdsourcing platforms can also be used to conduct experiments that incorporate the induction of aversive affective states. First, a laboratory experiment with German university students was conducted in which a frustrating task induced anger and aggressive behavior. This experiment was then replicated online using five crowdsourcing samples. The results suggest that participants in the online samples reacted very similarly to the anger manipulation as participants in the laboratory experiments. However, effect sizes were smaller in crowdsourcing samples with non-German participants while a crowdsourcing sample with exclusively German participants yielded virtually the same effect size as in the laboratory.
User sanctions influence the legal risk for participants in illegal drug markets. A change in user sanctions may change retail drug prices, depending on how it changes the legal risk to users, how it changes the legal risk to dealers, and the slope of the supply curve. Using a novel dataset with rich transaction-level information, this paper evaluates the impact of recent changes in user sanctions for marijuana on marijuana prices. The results suggest that lower legal risks for users are associated with higher marijuana prices in the short-run, which ceteris paribus, implies higher profits for drug dealers. Additionally, the findings have important implications for thinking about the slope of the supply curve and interpreting previous research on the effect of drug laws on demand for marijuana.
This paper contains the first estimates of the price sensitivity of the prevalence of youth marijuana use. Survey data on marijuana use by high school seniors from the Monitoring the Future Project are combined with data on marijuana prices and potency from the Drug Enforcement Administration Office of Intelligence or Intelligence Division. Our estimates of the price elasticity of annual marijuana participation range from 0.06 to 0.47, while those for thirty day participation range from 0.002 to 0.69. These estimates clearly imply that changes in the real, quality adjusted price of marijuana contributed significantly to the trends in youth marijuana use between 1982 and 1998, particularly during the contraction in use from 1982 to 1992. Similarly, changes in youth perceptions of the harms associated with regular marijuana use had a substantial impact on both the contraction in use during the 1982 though 1992 period and the subsequent expansion in use after 1992. These findings underscore the usefulness of considering price in addition to more traditional determinants in any analysis of marijuana consumption decisions made by youths.
This paper documents the rise of the Internet as a source of state tax-free cigarettes and its impact on taxed sales elasticities. Using data on cigarette tax rates, taxable cigarette sales and individual smoking rates by state from 1980 to 2005 merged with data on Internet penetration, this paper documents that there has been a substantial increase in the sensitivity of taxable cigarette sales to state tax rates that is correlated with the rise of Internet usage within states. The estimates imply that the increased sensitivity from cigarette smuggling over the Internet has lessened the revenue generating potential of cigarette tax increases significantly, although states are still far from the revenue-maximizing tax rates. (JEL D12, H25, H31, H71, L66)
In recent years, the debate over the costs and benefits of legalizing the use of currently illicit drugs has been revived. This paper attempts to inform this debate by providing some evidence on the effects of illicit drug prices and legal sanctions for drug possession and sale on youth drug use. Data on cocaine and marijuana use by high school seniors are taken from the 1982 and 1989 Monitoring the Future surveys. Site-specific data on cocaine prices and legal sanctions for the possession and sale, manufacture or distribution of cocaine and marijuana are added to the survey data. The results indicate that youth cocaine demand is sensitive to price, with average past year and past month cocaine demand elasticities of -1.28 and -1.43, respectively. In addition, the estimates suggest that increased sanctions for the possession of cocaine and marijuana have a negative and statistically significant impact on youth cocaine and marijuana use. However, the magnitude of these estimates implies that very large increases in the monetary fines that can be imposed for first offense possession would be necessary to achieve meaningful reductions in use. Finally, sanctions for the sale, manufacture or distribution of cocaine and marijuana were found to have little impact on youth cocaine and marijuana use.
This paper uses crowd-sourced transaction data from a cross section of the USA to examine demand for marijuana. State and regional variations in consumption, price, and quality are also explored. Our data are a unique cross section of over 23,000 actual marijuana transactions where price, quantity, and quality are reported, allowing for an estimation of the full demand elasticity rather than the participation elasticity. In addition, we account for the endogeneity of price by using instrumental variable estimation to calculate price elasticity. Price elasticity of demand estimates ranges between 0.67 and 0.79. Noticeable price differences are found between high-, medium-, and low-quality marijuana, with high-quality marijuana, at 5.63 a gram. Significant price variation is also found by medical marijuana status and census region, although this variation depends critically on the quality of the marijuana.
We estimate the effect of medical marijuana laws (MMLs) in ten states between 2004 and 2012 on adolescent and adult use of marijuana, alcohol, and other psychoactive substances. We find increases in the probability of current marijuana use, regular marijuana use and marijuana abuse/dependence among those aged 21 or above. We also find an increase in marijuana use initiation among those aged 12-20. For those aged 21 or above, MMLs further increase the frequency of binge drinking. MMLs have no discernible impact on drinking behavior for those aged 12-20, or the use of other psychoactive substances in either age group.
Copyright © 2015 Elsevier B.V. All rights reserved.
More and more states have passed laws that allow individuals to use marijuana for medical purposes. There is an ongoing, heated policy debate over whether these laws have increased marijuana use among non-patients. In this paper, I address that question empirically by studying marijuana possession arrests in cities from 1988 to 2008. I estimate fixed effects models with city-specific time trends that can condition on unobserved heterogeneities across cities in both their levels and trends. I find that these laws increase marijuana arrests among adult males by about 15–20%. These results are further validated by findings from data on treatment admissions to rehabilitation facilities: marijuana treatments among adult males increased by 10–20% after the passage of medical marijuana laws.
Employing a unique dataset that covers households from six West African capitals, this paper provides new evidence on the demand for informal sector products and services. We first investigate whether demand linkages exist between formal and informal products and distribution channels. In a second step, we estimate demand elasticities based on Engel curves. We find strong demand-side linkages between the formal and informal sector, with the exception that informal goods are hardly bought through formal distribution channels. The estimated demand elasticities tend to show that rising incomes are associated with a lower propensity to consume informal sector goods and to use informal distribution channels.
Although policymakers and law enforcement officials argue that medical marijuana laws (MMLs) “send the wrong message” to young
people, previous studies have produced no evidence of a causal relationship between MMLs and marijuana use among teens. Using
data from the national and state Youth Risk Behavior Surveys, the National Longitudinal Survey of Youth 1997, and the Treatment
Episode Data Set, we revisit this relationship. Our results are not consistent with the hypothesis that legalization of medical
marijuana leads to increased marijuana use among teenagers.
State and federal governments in the United States face massive looming fiscal deficits. One policy change that can reduce deficits is ending the drug war. Legalization means reduced expenditure on enforcement and an increase in tax revenue from legalized sales.This report estimates that legalizing drugs would save roughly 25.7 billion would accrue to state and local governments, while 8.7 billion of the savings would result from legalization of marijuana and 46.7 billion annually, assuming legal drugs were taxed at rates comparable to those on alcohol and tobacco. Approximately 38.0 billion from legalization of other drugs.
Dissatisfaction with current drug policy measures has led to a push for the regulation of drugs, especially marijuana. On the premise that such regulation is a real possibility, estimates of potential tax revenue from a regulation scheme and critical comments on other estimates of the size of the marijuana market are presented. For 1991, potential tax revenue is estimated to range from 2.55 to 9.09 billion dollars. The uncertainty surrounding the price elasticity of demand for marijuana, home cultivation of marijuana by individual users, and the extent to which purchases may still be made from the black market are discussed, as are their implications for potential tax revenue.
This paper estimates the effects of alcohol prices, marijuana decriminalization, cocaine prices, and heroin prices on the demand for these four substances. Both own price effects and cross price effects are estimated. The estimated price elasticities for alcohol, cocaine, and heroin are, respectively, –.30, –.28 and –.94. Marijuana decriminalization was found to increase the probability of marijuana participation by about 8%. The results for the cross price effects provide general evidence of complementarity. It is estimated that decriminalization of cocaine and heroin might lead to about 260,000 new regular cocaine users and about 47,000 new regular heroin users. (JEL 110)
Conventional wisdom once held that the demand for addictive substances like cigarettes, alcohol, and drugs was unlike that for any other economic good and, therefore, unresponsive to traditional market forces. Recently, however, researchers from two disparate fields, economics and behavioral psychology, have found that increases in the overall price of an addictive substance can significantly reduce both the number of users and the amounts those users consume. Changes in the "full price" of addictive substancesâincluding monetary value, time outlay, effort to obtain, and potential penalties for illegal useâyield marked variations in behavioral outcomes and demand. The Economic Analysis of Substance Use and Abuse brings these distinctive fields of study together and presents for the first time an integrated assessment of their data and results. Unique and innovative, this multidisciplinary volume will serve as an important resource in the current debates concerning alcohol and drug use and abuse and the impacts of legalizing illicit drugs.
Gould and Segall argued that the introduction of a third, composite good vitiates the Alchian and Allen (A-A) theorem that a common charge on two substitute goods leads, real income held constant, to a relative increase in the consumption of the higher to lower quality commodity. Using Hicks's third law, however, it is demonstrated that the direct substitution effect tends to dominate the interaction effect with the third good, if the two substitutes are close. Absolute changes are also investigated and some operational propositions offered with casual supporting observations. A-A's proposition is shown to be a useful price-theoretic construction, though not a direct implication of the law of demand.
At the beginning of this century, the Dutch government controlled the opium market in the Dutch East Indies--nowadays Indonesia--for several decades. This state monopoly was called the opiumregie. Using information gathered during the opiumregie, this paper estimates price elasticities of opium consumption. It appears that short-term price elasticities of opium use are about -0.7. Long-term price elasticities are about -1.0. Copyright 1995 by University of Chicago Press.
Using a unique data set of almost 2,500 interviews with people attending a needle exchange service in Oslo, this paper sets out to estimate the impact of economic factors on heroin and amphetamine injectors’ drug consumption, including cross-price effects. To examine the robustness of the conclusions, four model versions are considered: with focus on (i) switching regression mechanisms treating dealing/non-dealing as an endogenous decision, (ii) spline function versions examining possible ‘kinks’ in the price response, (iii) a dynamic model version focusing on addiction, and (iv) pseudo panel data model versions focusing on unobserved heterogeneity. Negative and significant price elasticities and positive and significant income elasticities come out as robust results. Their magnitude vary, however, depending on the type of model, on the main drug for injecting, and on whether the consumer also is a dealer. Copyright Springer-Verlag 2004
Prior studies, by relying on nationally representative surveys, have overlooked the important fact that use of addictive substances is not uniformly distributed; subgroups of hardcore users account for most of the drug consumption. This study employs the Arrestee Drug Abuse Monitoring system to analyze the demand for cocaine and heroin by urban arrestees, employing objective indicators of use based on urinalysis. The data are repeated city cross sections, and panel data methodology is employed to account for endogeneity. Cocaine and heroin prices have a negative effect on the probability of use even among this group of heavy users. Results indicate that subjective, self-reported measures of participation are likely to be under-reported, which may impart bias to estimates of the price elasticity. The own-price cocaine participation elasticity is about -0.15, and the own-price heroin participation elasticity is about -0.10 for arrestees. This contemporaneous elasticity understates the full effect, and the long-run price elasticity is about twice the magnitude. The magnitude of the price response is substantially smaller relative to the estimates in the prior literature, and calculations suggest that further enforcement and interdiction-driven increases in drug prices may not be cost-effective.
Estimating elasticities of cigarette demand has become commonplace amongst economists and policymakers. Synthesizing the various elasticities into a coherent message is quite challenging, however, as the point estimates are obtained using quite disparate modeling techniques and data. In this study, we perform a meta-analysis to explore factors that influence variations within and across studies. Empirical results suggest that demand specification, data issues, and estimation methodology have varying degrees of influence on reported estimates of price, income, and advertising elasticities.
The State of Legal Marijuana Markets
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Obama Administration Will Not Block State Marijuana Laws, If Distribution Is Regulated
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