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Regulation on coexisting legal and illegal markets with quality differentiation

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  • Ken Yahagi

    (University of Tokyo)

Abstract

This paper considers coexisting legal and illegal markets for goods with undesirable consumption externalities, such as marijuana markets. This paper introduces a quality differentiation between legal and illegal markets, e.g., product differentiation and its consumption externality, and investigates the effects of regulations such as taxation and quality control on legal markets and enforcement against illegal producers and consumers. This paper shows that these regulations of legal and illegal markets are likely to cause divergence between legal and illegal prices and may fail to reduce social costs.

Suggested Citation

  • Ken Yahagi, 2022. "Regulation on coexisting legal and illegal markets with quality differentiation," European Journal of Law and Economics, Springer, vol. 53(2), pages 235-259, April.
    • Handle: RePEc:kap:ejlwec:v:53:y:2022:i:2:d:10.1007_s10657-022-09724-x
    DOI: 10.1007/s10657-022-09724-x
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    References listed on IDEAS

    as
    1. Ken Yahagi, 2018. "Welfare effects of forming a criminal organization," European Journal of Law and Economics, Springer, vol. 46(3), pages 359-375, December.
    2. Abdala Mansour & Nicolas Marceau & Steeve Mongrain, 2006. "Gangs and Crime Deterrence," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 22(2), pages 315-339, October.
    3. Poret, Sylvaine & Tejedo, Cyril, 2006. "Law enforcement and concentration in illicit drug markets," European Journal of Political Economy, Elsevier, vol. 22(1), pages 99-114, March.
    4. Zhuang Hao & Benjamin W. Cowan, 2020. "The Cross‐Border Spillover Effects Of Recreational Marijuana Legalization," Economic Inquiry, Western Economic Association International, vol. 58(2), pages 642-666, April.
    5. Brett Hollenbeck & Kosuke Uetake, 2021. "Taxation and market power in the legal marijuana industry," RAND Journal of Economics, RAND Corporation, vol. 52(3), pages 559-595, September.
    6. Immordino, G. & Russo, F.F., 2015. "Regulating prostitution: A health risk approach," Journal of Public Economics, Elsevier, vol. 121(C), pages 14-31.
    7. Ken Yahagi, 2019. "Law enforcement with criminal organizations and endogenous collaboration," European Journal of Law and Economics, Springer, vol. 48(3), pages 351-363, December.
    8. Dragone, Davide & Prarolo, Giovanni & Vanin, Paolo & Zanella, Giulio, 2019. "Crime and the legalization of recreational marijuana," Journal of Economic Behavior & Organization, Elsevier, vol. 159(C), pages 488-501.
    9. Flores, Daniel, 2016. "Violence and law enforcement in markets for illegal goods," International Review of Law and Economics, Elsevier, vol. 48(C), pages 77-87.
    10. Garoupa, Nuno, 2000. "The Economics of Organized Crime and Optimal Law Enforcement," Economic Inquiry, Western Economic Association International, vol. 38(2), pages 278-288, April.
    11. Simon Rottenberg, 1973. "The Economics of Crime and Punishment," Books, American Enterprise Institute, number 920506, September.
    12. Evelina Gavrilova & Takuma Kamada & Floris Zoutman, 2019. "Is Legal Pot Crippling Mexican Drug Trafficking Organisations? The Effect of Medical Marijuana Laws on US Crime," The Economic Journal, Royal Economic Society, vol. 129(617), pages 375-407.
    13. Vivian Hoffmann & Christine Moser, 2017. "You get what you pay for: the link between price and food safety in Kenya," Agricultural Economics, International Association of Agricultural Economists, vol. 48(4), pages 449-458, July.
    14. Wu, Guangzhen & Wen, Ming & Wilson, Fernando A., 2021. "Impact of recreational marijuana legalization on crime: Evidence from Oregon," Journal of Criminal Justice, Elsevier, vol. 72(C).
    15. Alan Collins & Guy Judge, 2010. "Differential enforcement across police jurisdictions and client demand in paid sex markets," European Journal of Law and Economics, Springer, vol. 29(1), pages 43-55, February.
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    More about this item

    Keywords

    Legalization; Prohibition; Licensing; Drugs; Marijuana;
    All these keywords.

    JEL classification:

    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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