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Three Facts About Marijuana Prices

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Author Info

  • Kenneth W. Clements

    (Department of Economics, The University of Western Australia)

Abstract

Australians are among the largest consumers of marijuana in the world, and estimates show that their expenditure on marijuana is about twice that on wine. In this paper we analyse the evolution of marijuana prices in Australia and show that they have declined in real terms by almost 40 percent over the decade. This decline is far above that experienced by most agricultural products. Why has this occurred and what are the implications? The extensive adoption of hydroponic techniques in growing marijuana is likely to have enhanced productivity, with the benefits passed onto consumers in the form of lower prices. We find patterns int he prices that divide the country into three broad regions: (i) Sydney, where prices are highest; (ii) Melbourne and Canberra, which have somewhat lower prices; and (iii) everywhere else, where marijuana is cheapest. We also find that marijuana prices seem to be (positively) related to real estate prices. A further finding is that the price declines have stimulated marijuana consumption by about 15 percent, inhibited drinking (marijuana and alcohol being substitutes) and led to an increase in the real incomes of users in excess of $1 billion p.a.

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File URL: http://ecompapers.biz.uwa.edu.au/paper/PDF%20of%20Discussion%20Papers/2002/02-10.pdf
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Bibliographic Info

Paper provided by The University of Western Australia, Department of Economics in its series Economics Discussion / Working Papers with number 02-10.

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Length: 79 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:uwa:wpaper:02-10

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Postal: 35 Stirling Highway, Crawley, W.A. 6009
Phone: (08) 9380 2918
Fax: (08) 9380 1016
Web page: http://www.business.uwa.edu.au/school/disciplines/economics
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Keywords: marijuana consumption; australia; alcohol;

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References

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  1. Frank J. Chaloupka & Adit Laixuthai, 1994. "Do Youths Substitute Alcohol and Marijuana? Some Econometric Evidence," NBER Working Papers 4662, National Bureau of Economic Research, Inc.
  2. Rosalie Liccardo Pacula, 1998. "Adolescent Alcohol and Marijuana Consumption: Is There Really a Gateway Effect?," NBER Working Papers 6348, National Bureau of Economic Research, Inc.
  3. Suren Basov & Mireille Jacobson & Jeffrey A. Miron, 2001. "Prohibition and the Market for Illegal Drugs," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 2(4), pages 133-157, October.
  4. Selvanathan, Saroja, 1987. "A Monte Carlo test of preference independence," Economics Letters, Elsevier, vol. 25(3), pages 259-261.
  5. Clements, Kenneth W., 2003. "Three Facts About Marijuana Prices," 2003 Conference (47th), February 12-14, 2003, Fremantle, Australia 57846, Australian Agricultural and Resource Economics Society.
  6. Friedrich Schneider, 2001. "What Do We Know About the Shadow Economy?," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 2(4), pages 19-32, October.
  7. Saffer, Henry & Chaloupka, Frank, 1999. "The Demand for Illicit Drugs," Economic Inquiry, Western Economic Association International, vol. 37(3), pages 401-11, July.
  8. Yuan, Yuehong & Caulkins, Jonathan P., 1998. "The Effect of Variation in High-level Domestic Drug Enforcement on Variation in Drug Prices," Socio-Economic Planning Sciences, Elsevier, vol. 32(4), pages 265-276, December.
  9. Barten, Anton P, 1977. "The Systems of Consumer Demand Functions Approach: A Review," Econometrica, Econometric Society, vol. 45(1), pages 23-51, January.
  10. Kenneth Clements & Wana Yang & Simon Zheng, 1997. "Is utility additive? The case of alcohol," Applied Economics, Taylor & Francis Journals, vol. 29(9), pages 1163-1167.
  11. Henry Saffer & Frank Chaloupka, 1998. "Demographic Differentials in the Demand for Alcohol and Illicit Drugs," NBER Working Papers 6432, National Bureau of Economic Research, Inc.
  12. Massimo Motta, 1996. "Advertising bans," Economics Working Papers 205, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 1997.
  13. Clements,Kenneth W. & Zhao,Xueyan, 2009. "Economics and Marijuana," Cambridge Books, Cambridge University Press, number 9780521884952, November.
  14. Jeffrey A. Miron, 1999. "The Effect of Alcohol Prohibition on Alcohol Consumption," NBER Working Papers 7130, National Bureau of Economic Research, Inc.
  15. Ernst R. Berndt & Neal J. Rappaport, 2001. "Price and Quality of Desktop and Mobile Personal Computers: A Quarter-Century Historical Overview," American Economic Review, American Economic Association, vol. 91(2), pages 268-273, May.
  16. Kenneth W. Clements & Mert Daryal, 2001. "Marijuana Prices in Australia in the 1990s," Economics Discussion / Working Papers 01-01, The University of Western Australia, Department of Economics.
  17. Grilli, Enzo R & Yang, Maw Cheng, 1988. "Primary Commodity Prices, Manufactured Goods Prices, and the Terms of Trade of Developing Countries: What the Long Run Shows," World Bank Economic Review, World Bank Group, vol. 2(1), pages 1-47, January.
  18. John DiNardo & Thomas Lemieux, 1992. "Alcohol, Marijuana, and American Youth: The Unintended Effects of Government Regulation," NBER Working Papers 4212, National Bureau of Economic Research, Inc.
  19. Pacula, Rosalie Liccardo, 1998. "Does increasing the beer tax reduce marijuana consumption?," Journal of Health Economics, Elsevier, vol. 17(5), pages 557-585, October.
  20. Xueyan Zhao & Mark N. Harris, 2004. "Demand for Marijuana, Alcohol and Tobacco: Participation, Levels of Consumption and Cross-equation Correlations," The Economic Record, The Economic Society of Australia, vol. 80(251), pages 394-410, December.
  21. Jeffrey A. Miron, 2003. "The Effect of Drug Prohibition on Drug Prices: Evidence from the Markets for Cocaine and Heroin," NBER Working Papers 9689, National Bureau of Economic Research, Inc.
  22. Cameron, Lisa & Williams, Jenny, 2001. "Cannabis, Alcohol and Cigarettes: Substitutes or Complements?," The Economic Record, The Economic Society of Australia, vol. 77(236), pages 19-34, March.
  23. Clements, Kenneth W & Selvanathan, Antony & Selvanathan, Saroja, 1996. "Applied Demand Analysis: A Survey," The Economic Record, The Economic Society of Australia, vol. 72(216), pages 63-81, March.
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Citations

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Cited by:
  1. Clements, Kenneth W., 2003. "Three Facts About Marijuana Prices," 2003 Conference (47th), February 12-14, 2003, Fremantle, Australia 57846, Australian Agricultural and Resource Economics Society.
  2. 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.
  3. James Fogarty, 2004. "The Own-Price Elasticity of Alcohol: A Meta-Analysis," Economics Discussion / Working Papers 04-01, The University of Western Australia, Department of Economics.
  4. Kenneth W Clements & Yihui Lan & Xueyan Zhao, 2006. "The Demand for Vice: Inter-Commodity Interactions with Uncertainty," Economics Discussion / Working Papers 06-30, The University of Western Australia, Department of Economics.
  5. Zhao, Xueyan, 2003. "Drugs as a Rational Choice: Preliminary Explorations of Marijuana Consumption in Australia," 2003 Conference (47th), February 12-14, 2003, Fremantle, Australia 58276, Australian Agricultural and Resource Economics Society.
  6. Kenneth W. Clements & Xueyan Zhao, 2005. "Economic Aspects of Marijuana," Economics Discussion / Working Papers 05-28, The University of Western Australia, Department of Economics.
  7. Kenneth W. Clements, 2006. "Pricing and Packaging: The Case of Marijuana," The Journal of Business, University of Chicago Press, vol. 79(4), pages 2019-2044, July.

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