IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/13814.html
   My bibliography  Save this paper

Defeating Crime? An Economic Analysis of Cannabis Legalization Policies

Author

Listed:
  • Auriol, Emmanuelle
  • Mesnard, Alice
  • Perrault, Tiffanie

Abstract

Can legalization of cannabis eliminate related organized crime? We model consumer choices for cannabis in a risky environment and determine the provision of cannabis, under prohibition and legalization. Although a legalization policy may crumble the profits from illegal providers driving them out of business, it also increases cannabis use. In contrast, repression decreases cannabis consumption but strengthens the cartelization of criminal networks. Combining legalization with repression can strangle the black market while controlling the demand for cannabis. Based on evidence from the US, policy simulations are used to compute the price of legal cannabis that would achieve this dual objective and highlight the complementarities between repression and legalization. For example, with a 1% probability of arrest and a USD 2000 fine for illegal purchase, a legal price around USD 439 per ounce would evict illegal suppliers and increase the consumption by less that 25%. If the probability of arrest reaches 2%, the eviction price can go up to USD 622 and overall consumption increases by no more than 5:5%.

Suggested Citation

  • Auriol, Emmanuelle & Mesnard, Alice & Perrault, Tiffanie, 2019. "Defeating Crime? An Economic Analysis of Cannabis Legalization Policies," CEPR Discussion Papers 13814, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:13814
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP13814
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Pacula Rosalie Liccardo & Kilmer Beau & Grossman Michael & Chaloupka Frank J, 2010. "Risks and Prices: The Role of User Sanctions in Marijuana Markets," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-38, February.
    2. Chang, Tom Y. & Jacobson, Mireille, 2017. "Going to pot? The impact of dispensary closures on crime," Journal of Urban Economics, Elsevier, vol. 100(C), pages 120-136.
    3. Manolis Galenianos & Rosalie Liccardo Pacula & Nicola Persico, 2012. "A Search-Theoretic Model of the Retail Market for Illicit Drugs," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(3), pages 1239-1269.
    4. Sylvaine Poret, 2002. "Paradoxical effects of law enforcement policies: the case of the illicit drug market," Post-Print hal-02960430, HAL.
    5. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54, National Bureau of Economic Research, Inc.
    6. Liana Jacobi & Michelle Sovinsky, 2016. "Marijuana on Main Street? Estimating Demand in Markets with Limited Access," American Economic Review, American Economic Association, vol. 106(8), pages 2009-2045, August.
    7. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    8. Chaloupka, Frank, 1991. "Rational Addictive Behavior and Cigarette Smoking," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 722-742, August.
    9. van Ours, Jan C. & Williams, Jenny, 2007. "Cannabis prices and dynamics of cannabis use," Journal of Health Economics, Elsevier, vol. 26(3), pages 578-596, May.
    10. Manolis Galenianos & Alessandro Gavazza, 2017. "A Structural Model of the Retail Market for Illicit Drugs," American Economic Review, American Economic Association, vol. 107(3), pages 858-896, March.
    11. Amos Tversky & Daniel Kahneman, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1039-1061.
    12. J. Williams & Rosalie Liccardo Pacula & Frank J. Chaloupka & Henry Wechsler, 2004. "Alcohol and marijuana use among college students: economic complements or substitutes?," Health Economics, John Wiley & Sons, Ltd., vol. 13(9), pages 825-843, September.
    13. R. H. Coase, 2013. "The Problem of Social Cost," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 837-877.
    14. Ali Palali & Jan C. van Ours, 2015. "Distance to Cannabis Shops and Age of Onset of Cannabis Use," Health Economics, John Wiley & Sons, Ltd., vol. 24(11), pages 1483-1501, November.
    15. Jeffrey Brinkman & David Mok-Lamme, 2017. "Not in My Backyard? Not So Fast. The Effect of Marijuana Legalization on Neighborhood Crime," Working Papers 17-19, Federal Reserve Bank of Philadelphia.
    16. Michael R. Caputo & Brian J. Ostrom, 1994. "Potential Tax Revenue from a Regulated Marijuana Market A Meaningful Revenue Source," American Journal of Economics and Sociology, Wiley Blackwell, vol. 53(4), pages 475-490, October.
    17. Benjamin Hansen & Keaton Miller & Caroline Weber, 2020. "Early Evidence On Recreational Marijuana Legalization And Traffic Fatalities," Economic Inquiry, Western Economic Association International, vol. 58(2), pages 547-568, April.
    18. Andreas Glöckner & Tilmann Betsch, 2008. "Do People Make Decisions Under Risk Based on Ignorance? An Empirical Test of the Priority Heuristic against Cumulative Prospect Theory," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2008_05, Max Planck Institute for Research on Collective Goods.
    19. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
    20. 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.
    21. Nicholas Barberis & Abhiroop Mukherjee & Baolian Wang, 2016. "Prospect Theory and Stock Returns: An Empirical Test," The Review of Financial Studies, Society for Financial Studies, vol. 29(11), pages 3068-3107.
    22. Adam J. Davis & Karl R. Geisler & Mark W. Nichols, 2016. "The price elasticity of marijuana demand: evidence from crowd-sourced transaction data," Empirical Economics, Springer, vol. 50(4), pages 1171-1192, June.
    23. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    24. Becker, Gary S & Grossman, Michael & Murphy, Kevin M, 1994. "An Empirical Analysis of Cigarette Addiction," American Economic Review, American Economic Association, vol. 84(3), pages 396-418, June.
    25. Manolis Galenianos & Alessandro Gavazza, 2017. "A Structural Model of the Retail Market for Illicit Drugs," American Economic Review, American Economic Association, vol. 107(3), pages 858-896, March.
    26. J. Williams, 2004. "The effects of price and policy on marijuana use: what can be learned from the Australian experience?," Health Economics, John Wiley & Sons, Ltd., vol. 13(2), pages 123-137, February.
    27. Anne Line Bretteville‐Jensen & Liana Jacobi, 2011. "Climbing the drug staircase: a Bayesian analysis of the initiation of hard drug use," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(7), pages 1157-1186, November.
    28. Jonathan P. Caulkins, 1993. "Zero-Tolerance Policies: Do They Inhibit or Stimulate Illicit Drug Consumption?," Management Science, INFORMS, vol. 39(4), pages 458-476, April.
    29. Andrew Resignato, 2000. "Violent crime: a function of drug use or drug enforcement?," Applied Economics, Taylor & Francis Journals, vol. 32(6), pages 681-688.
    30. Poret, Sylvaine, 2002. "Paradoxical effects of law enforcement policies: the case of the illicit drug market," International Review of Law and Economics, Elsevier, vol. 22(4), pages 465-493, December.
    31. Angela K. Dills & Sietse Goffard & Jeffrey Miron, 2017. "The Effects of Marijuana Liberalizations: Evidence from Monitoring the Future," NBER Working Papers 23779, National Bureau of Economic Research, Inc.
    32. Jeffrey A. Miron & Jeffrey Zwiebel, 1995. "The Economic Case against Drug Prohibition," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 175-192, Fall.
    33. Becker, Gary S & Murphy, Kevin M, 1988. "A Theory of Rational Addiction," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 675-700, August.
    34. Jeffrey A. Miron, 2003. "The Effect of Drug Prohibition on Drug Prices: Evidence from the Markets for Cocaine and Heroin," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 522-530, August.
    35. MacCoun,Robert J. & Reuter,Peter, 2001. "Drug War Heresies," Cambridge Books, Cambridge University Press, number 9780521799973.
    36. Goodhart, Charles & Ashworth, Jonathan, 2019. "Canadian Legalization of Cannabis reduces both its cash usage and ‘Black’ Economy," CEPR Discussion Papers 13448, C.E.P.R. Discussion Papers.
    37. Gary S. Becker & Kevin M. Murphy & Michael Grossman, 2006. "The Market for Illegal Goods: The Case of Drugs," Journal of Political Economy, University of Chicago Press, vol. 114(1), pages 38-60, February.
    38. Glöckner, Andreas & Betsch, Tilmann, 2008. "Do people make decisions under risk based on ignorance? An empirical test of the priority heuristic against cumulative prospect theory," Organizational Behavior and Human Decision Processes, Elsevier, vol. 107(1), pages 75-95, September.
    39. van Ours, Jan C, 1995. "The Price Elasticity of Hard Drugs: The Case of Opium in the Dutch East Indies, 1923-1938," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 261-279, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Auriol, Emmanuelle & Mesnard, Alice & Perrault, Tiffanie, 2023. "Weeding out the dealers? The economics of cannabis legalization," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 62-101.
    2. Carrieri, Vincenzo & Madio, Leonardo & Principe, Francesco, 2020. "Do-It-Yourself medicine? The impact of light cannabis liberalization on prescription drugs," Journal of Health Economics, Elsevier, vol. 74(C).
    3. Carrieri, Vincenzo & Madio, Leonardo & Principe, Francesco, 2019. "Light cannabis and organized crime: Evidence from (unintended) liberalization in Italy," European Economic Review, Elsevier, vol. 113(C), pages 63-76.
    4. Edward M. Shepard & Paul R. Blackely, 2010. "Economics of Crime and Drugs: Prohibition and Public Policies for Illicit Drug Control," Chapters, in: Bruce L. Benson & Paul R. Zimmerman (ed.), Handbook on the Economics of Crime, chapter 10, Edward Elgar Publishing.
    5. Carlos Casacuberta & Mariana Gerstenblüth & Patricia Triunfo, 2012. "Aportes del análisis económico al estudio de las drogas," Documentos de Trabajo (working papers) 0112, Department of Economics - dECON.
    6. Poret, Sylvaine, 2009. "An optimal anti-drug law enforcement policy," International Review of Law and Economics, Elsevier, vol. 29(3), pages 221-228, September.
    7. Manolis Galenianos & Alessandro Gavazza, 2017. "A Structural Model of the Retail Market for Illicit Drugs," American Economic Review, American Economic Association, vol. 107(3), pages 858-896, March.
    8. 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.
    9. Leong, Kaiwen & Li, Huailu & Xu, Haibo, 2019. "Effect of Enforcement Shock on Pushers' Activities: Evidence from an Asian Drug-Selling Gang," IZA Discussion Papers 12083, Institute of Labor Economics (IZA).
    10. Pudney, Stephen & Bryan, Mark & DelBono, Emilia, 2013. "Licensing and regulation of the cannabis market in England and Wales: Towards a cost-benefit analysis," MPRA Paper 50365, University Library of Munich, Germany.
    11. Anderson, D. Mark & Rees, Daniel I., 2021. "The Public Health Effects of Legalizing Marijuana," IZA Discussion Papers 14292, Institute of Labor Economics (IZA).
    12. Anne Bretteville-Jensen, 2006. "Drug Demand – Initiation, Continuation and Quitting," De Economist, Springer, vol. 154(4), pages 491-516, December.
    13. Michael H. Birnbaum & Jeffrey P. Bahra, 2012. "Separating response variability from structural inconsistency to test models of risky decision making," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 7(4), pages 402-426, July.
    14. Ziggy MacDonald, 2004. "What Price Drug Use? The Contribution of Economics to an Evidence‐Based Drugs Policy," Journal of Economic Surveys, Wiley Blackwell, vol. 18(2), pages 113-152, April.
    15. Caulkins, Jonathan P. & Reuter, Peter, 2006. "Illicit drug markets and economic irregularities," Socio-Economic Planning Sciences, Elsevier, vol. 40(1), pages 1-14, March.
    16. Jacobs Martin, 2016. "Accounting for Changing Tastes: Approaches to Explaining Unstable Individual Preferences," Review of Economics, De Gruyter, vol. 67(2), pages 121-183, August.
    17. Bhaskar, V. & Linacre, Robin & Machin, Stephen, 2019. "The economic functioning of online drugs markets," Journal of Economic Behavior & Organization, Elsevier, vol. 159(C), pages 426-441.
    18. Cheng, Stephanie F. & De Franco, Gus & Lin, Pengkai, 2023. "Marijuana liberalization and public finance: A capital market perspective on the passage of medical use laws," Journal of Accounting and Economics, Elsevier, vol. 75(1).
    19. Sylvaine Poret, 2006. "L'impact des politiques répressives sur l'offre de drogues illicites. Une revue de la littérature théorique," Revue économique, Presses de Sciences-Po, vol. 57(5), pages 1065-1091.
    20. Clark, Andrew E., 1999. "Are wages habit-forming? evidence from micro data," Journal of Economic Behavior & Organization, Elsevier, vol. 39(2), pages 179-200, June.

    More about this item

    Keywords

    Cannabis; Legalization; Crime; Policy; Regulation;
    All these keywords.

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:13814. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.