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

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  • Rosalie Liccardo Pacula
  • Beau Kilmer
  • Michael Grossman
  • Frank J. Chaloupka

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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Bibliographic Info

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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Publication status: published as Rosalie Liccardo Pacula & Beau Kilmer & Michael Grossman & Frank J. Chaloupka, 2010. "Risks and Prices: The Role of User Sanctions in Marijuana Markets," The B.E. Journal of Economic Analysis & Policy, Berkeley Electronic Press, vol. 10(1).
Handle: RePEc:nbr:nberwo:13415

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  1. Saffer, Henry & Chaloupka, Frank, 1999. "The Demand for Illicit Drugs," Economic Inquiry, Western Economic Association International, vol. 37(3), pages 401-11, July.
  2. 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.
  3. Jeff DeSimone & Matthew C. Farrelly, . "Price and Enforcement Effects on Cocaine and Marijuana Demand," Working Papers 0101, East Carolina University, Department of Economics.
  4. 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.
  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.
  6. Gary S. Becker & Kevin M. Murphy & Michael Grossman, 2004. "The Economic Theory of Illegal Goods: The Case of Drugs," NBER Working Papers 10976, National Bureau of Economic Research, Inc.
  7. Jonathan P. Caulkins, 1997. "Modeling the Domestic Distribution Network for Illicit Drugs," Management Science, INFORMS, vol. 43(10), pages 1364-1371, October.
  8. 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.
    • Rosalie Liccardo Pacula & Michael Grossman & Frank J. Chaloupka & Patrick M. O’Malley & Lloyd D. Johnston & Matthew C. Farrelly, 2001. "Marijuana and Youth," NBER Chapters, in: Risky Behavior among Youths: An Economic Analysis, pages 271-326 National Bureau of Economic Research, Inc.
  9. Caulkins Jonathan P., 1995. "Domestic Geographic Variation in Illicit Drug Prices," Journal of Urban Economics, Elsevier, vol. 37(1), pages 38-56, January.
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Cited by:
  1. 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.
  2. Chu, Yu-Wei Luke, 2014. "The effects of medical marijuana laws on illegal marijuana use," Working Paper Series 3212, Victoria University of Wellington, School of Economics and Finance.
  3. Waddell, G.R., 2012. "Adolescent drug use and the deterrent effect of school-imposed penalties," Economics of Education Review, Elsevier, vol. 31(6), pages 961-969.

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