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Risks and Prices: The Role of User Sanctions in Marijuana Markets

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Author Info
Rosalie Liccardo Pacula
Beau Kilmer
Michael Grossman
Frank J. Chaloupka

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Abstract

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13415.

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Date of creation: Sep 2007
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Handle: RePEc:nbr:nberwo:13415

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Find related papers by JEL classification:
I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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  1. Saffer, Henry & Chaloupka, Frank, 1999. "The Demand for Illicit Drugs," Economic Inquiry, Oxford University Press, vol. 37(3), pages 401-11, July.
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  2. R. L. Pacula & M. Grossman & F. J. Chaloupka & P. M. O'Malley & L. Johnston & M. C. Farrelly, 2000. "Marijuana and Youth," NBER Working Papers 7703, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Farrelly, Matthew C. & Bray, Jeremy W. & Zarkin, Gary A. & Wendling, Brett W., 2001. "The joint demand for cigarettes and marijuana: evidence from the National Household Surveys on Drug Abuse," Journal of Health Economics, Elsevier, vol. 20(1), pages 51-68, January. [Downloadable!] (restricted)
  4. Caulkins Jonathan P., 1995. "Domestic Geographic Variation in Illicit Drug Prices," Journal of Urban Economics, Elsevier, vol. 37(1), pages 38-56, January. [Downloadable!] (restricted)
  5. Jenny Williams & Rosalie Liccardo Pacula & Frank J. Chaloupka & Henry Wechsler, 2001. "Alcohol and Marijuana Use Among College Students: Economic Complements or Substitutes?," NBER Working Papers 8401, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Breusch, T S & Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, vol. 47(5), pages 1287-94, September. [Downloadable!] (restricted)
  7. Jeff DeSimone & Matthew C. Farrelly, 2003. "Price and Enforcement Effects on Cocaine and Marijuana Demand," Economic Inquiry, Oxford University Press, vol. 41(1), pages 98-115, January.
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