May 3, 2006
The legalization of addictive drugs, such as heroin, marijuana, and cocaine, is a topic of vigorous classroom discussion. But the issue has not yet risen to be a matter of public or serious political debate in the U.S. Although the topic has been quiescent in U.S. political discussions, Mexico has recently legalized the possession of small amounts of addictive drugs, and the city council of Vancouver, British Columbia, has also recently debated drug legalization.
Three prominent economists -- Gary Becker, Kevin Murphy, and Michael Grossman -- have recently published a very important article on this topic: "The Market for Illegal Goods: The Case of Drugs," 114 J. Pol. Econ. 38 (2006). The article makes an eloquent case for "legalization, regulation, and taxation" as a far more efficient method of dealing with the social costs of addictive drugs than the current (and long ineffectual) policy.
Here are some excerpts from the article's abstract and introductory section:
"We show that the more inelastic either demand for or supply of a good is, the greater the increase in social cost from further reducing its production by greater enforcement efforts. So, optimal public expenditures on apprehension and conviction of illegal suppliers depend not only on the difference between the social and private values from consumption but also on these elasticities. When demand and supply are not too elastic, it does not pay to enforce any prohibition unless the social value is negative. We also show that a monetary tax could cause a grater reduction in output and increase in price than optimal enforcement against the same good would if it were illegal, even though some producers my go underground to avoid a monetary tax. When enforcement is costly, excise taxes and quantity restrictions are not equivalent."
"Section VI considers whether governments should try to discourage consumption of goods through advertising, as in the 'just say no' campaign against drug use. Our analysis implies that such advertising campaigns can be useful against illegal goods that require enforcement expenditures to discourage production. However, they are generally not desirable against legal goods when consumption is discouraged through optimal monetary taxes. ... When demand is inelastic, quantity reductions through enforcement against illegal producers are very costly and can be disastrous."
May 3, 2006 | Permalink
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