IDEAS home Printed from https://ideas.repec.org/a/bpj/bejeap/v10y2010i1n11.html
   My bibliography  Save this article

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

Author

Listed:
  • Pacula Rosalie Liccardo

    (RAND)

  • Kilmer Beau

    (RAND)

  • Grossman Michael

    (NBER)

  • Chaloupka Frank J

    (University of Illinois, Chicago)

Abstract

User sanctions influence the legal risk for consumers who engage in illegal drug markets. If a reduction in user sanctions leads to an increase in consumption, drug prices will rise unless supply is perfectly elastic. In equilibrium, a change in consumption associated with decreasing user sanctions could be relatively small if supply is upward sloping. 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 an upward sloping supply curve, higher consumption, and higher profits for drug dealers. The findings have important implications for the current policy debates regarding decriminalization of marijuana.

Suggested Citation

  • 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.
  • Handle: RePEc:bpj:bejeap:v:10:y:2010:i:1:n:11
    DOI: 10.2202/1935-1682.1992
    as

    Download full text from publisher

    File URL: https://doi.org/10.2202/1935-1682.1992
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

    File URL: https://libkey.io/10.2202/1935-1682.1992?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

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

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
      • R. L. Pacula & M. Grossman & F. J. Chaloupka & P. M. O'Malley & Lloyd D. Johnston & Matthew C. Farrelly, 2000. "Marijuana and Youth," NBER Working Papers 7703, National Bureau of Economic Research, Inc.
    2. 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.
    3. Saffer, Henry & Chaloupka, Frank, 1999. "The Demand for Illicit Drugs," Economic Inquiry, Western Economic Association International, vol. 37(3), pages 401-411, July.
    4. Wechsler, Henry & Lee, Jae Eun & Hall, John & Wagenaar, Alexander C. & Lee, Hang, 2002. "Secondhand effects of student alcohol use reported by neighbors of colleges: the role of alcohol outlets," Social Science & Medicine, Elsevier, vol. 55(3), pages 425-435, August.
    5. 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.
    6. Breusch, T S & Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, vol. 47(5), pages 1287-1294, September.
    7. Jeff DeSimone & Matthew C. Farrelly, 2003. "Price and Enforcement Effects on Cocaine and Marijuana Demand," Economic Inquiry, Western Economic Association International, vol. 41(1), pages 98-115, January.
    8. Chris Wilkins & Paul Sweetsur, 2006. "Exploring the Structure of the Illegal Market for Cannabis," De Economist, Springer, vol. 154(4), pages 547-562, December.
    9. Viscusi, W Kip, 1986. "The Risks and Rewards of Criminal Activity: A Comprehensive Test of Criminal Deterrence," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages 317-340, July.
    10. Kenkel, Donald S, 1993. "Drinking, Driving, and Deterrence: The Effectiveness and Social Costs of Alternative Policies," Journal of Law and Economics, University of Chicago Press, vol. 36(2), pages 877-913, October.
    11. Jon Nelson, 2008. "How Similar are Youth and Adult Alcohol Behaviors? Panel Results for Excise Taxes and Outlet Density," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 36(1), pages 89-104, March.
    12. MacCoun,Robert J. & Reuter,Peter, 2001. "Drug War Heresies," Cambridge Books, Cambridge University Press, number 9780521799973.
    13. 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.
    14. Daniel Eisenberg, 2003. "Evaluating the effectiveness of policies related to drunk driving," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 22(2), pages 249-274.
    15. 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.
    16. Caulkins Jonathan P., 1995. "Domestic Geographic Variation in Illicit Drug Prices," Journal of Urban Economics, Elsevier, vol. 37(1), pages 38-56, January.
    17. Pacula, Rosalie Liccardo, 1998. "Does increasing the beer tax reduce marijuana consumption?," Journal of Health Economics, Elsevier, vol. 17(5), pages 557-585, October.
    18. Daryl Pregibon, 1980. "Goodness of Link Tests for Generalized Linear Models," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 29(1), pages 15-24, March.
    19. MacCoun Robert & Pacula Rosalie Liccardo & Chriqui Jamie & Harris Katherine & Reuter Peter, 2009. "Do Citizens Know Whether Their State Has Decriminalized Marijuana? Assessing the Perceptual Component of Deterrence Theory," Review of Law & Economics, De Gruyter, vol. 5(1), pages 347-371, June.
    20. Jonathan P. Caulkins, 1997. "Modeling the Domestic Distribution Network for Illicit Drugs," Management Science, INFORMS, vol. 43(10), pages 1364-1371, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chu, Yu-Wei Luke, 2014. "The effects of medical marijuana laws on illegal marijuana use," Journal of Health Economics, Elsevier, vol. 38(C), pages 43-61.
    2. Jenny Williams & Rosalie Liccardo Pacula & Rosanna Smart, 2019. "De Facto or De Jure? Ethnic Differences in Quit Responses to Legal Protections of Medical Marijuana Dispensaries," NBER Working Papers 25555, National Bureau of Economic Research, Inc.
    3. Huber III Arthur & Newman Rebecca & LaFave Daniel, 2016. "Cannabis Control and Crime: Medicinal Use, Depenalization and the War on Drugs," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(4), pages 1-35, October.
    4. 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.
    5. Powell, David & Pacula, Rosalie Liccardo & Jacobson, Mireille, 2018. "Do medical marijuana laws reduce addictions and deaths related to pain killers?," Journal of Health Economics, Elsevier, vol. 58(C), pages 29-42.
    6. Yu-Wei Luke Chu, 2015. "Do Medical Marijuana Laws Increase Hard-Drug Use?," Journal of Law and Economics, University of Chicago Press, vol. 58(2), pages 481-517.
    7. 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).
    8. Chu, Yu-Wei Luke, 2014. "The effects of medical marijuana laws on illegal marijuana use," Journal of Health Economics, Elsevier, vol. 38(C), pages 43-61.
    9. Wen, Hefei & Hockenberry, Jason M. & Cummings, Janet R., 2015. "The effect of medical marijuana laws on adolescent and adult use of marijuana, alcohol, and other substances," Journal of Health Economics, Elsevier, vol. 42(C), pages 64-80.
    10. Cervený, J. & van Ours, J.C. & Chomynova, Pavla & Mravcik, Viktor, 2015. "Cannabis Decriminalization and the Age of Onset of Cannabis Use," Discussion Paper 2015-007, Tilburg University, Center for Economic Research.
    11. 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.
    12. 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.
    13. Daniel I. Rees, 2019. "Does substance use affect academic performance?," IZA World of Labor, Institute of Labor Economics (IZA), pages 1-66, April.
    14. Rosalie Liccardo Pacula & David Powell & Paul Heaton & Eric L. Sevigny, 2013. "Assessing the Effects of Medical Marijuana Laws on Marijuana and Alcohol Use: The Devil is in the Details," NBER Working Papers 19302, National Bureau of Economic Research, Inc.
    15. 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.
    16. Grant W. Neeley & Lilliard E. Richardson Jr., 2022. "Marijuana Policy Bundles in the American States Over Time and Their Impact on the Use of Marijuana and Other Drugs," Evaluation Review, , vol. 46(2), pages 165-199, April.
    17. Daniel I. Rees, 2014. "Does substance use affect educational outcomes?," IZA World of Labor, Institute of Labor Economics (IZA), pages 1-66, May.
    18. Lim, King Yoong & Morris, Diego, 2020. "The economics of the illicit drugs-for-guns trade and growth," Economic Modelling, Elsevier, vol. 91(C), pages 218-232.
    19. 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.
    20. Mike Langen & Erdal Aydin & Piet Eichholtz & Nils Kok, 2022. "Getting high or getting low? the external effects of coffeeshops on house prices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(2), pages 565-592, June.
    21. D. Mark Anderson & Benjamin Hansen & Daniel I. Rees, 2013. "Medical Marijuana Laws, Traffic Fatalities, and Alcohol Consumption," Journal of Law and Economics, University of Chicago Press, vol. 56(2), pages 333-369.
    22. 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.
    23. 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.

    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. 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.
    2. D. Mark Anderson & Benjamin Hansen & Daniel I. Rees, 2013. "Medical Marijuana Laws, Traffic Fatalities, and Alcohol Consumption," Journal of Law and Economics, University of Chicago Press, vol. 56(2), pages 333-369.
    3. D. Mark Anderson & Benjamin Hansen & Daniel I. Rees, 2015. "Medical Marijuana Laws and Teen Marijuana Use," American Law and Economics Review, American Law and Economics Association, vol. 17(2), pages 495-528.
    4. Dave, Dhaval, 2006. "The effects of cocaine and heroin price on drug-related emergency department visits," Journal of Health Economics, Elsevier, vol. 25(2), pages 311-333, March.
    5. Rosalie Liccardo Pacula & Jamie F. Chriqui & Joanna King, 2003. "Marijuana Decriminalization: What does it mean in the United States?," NBER Working Papers 9690, National Bureau of Economic Research, Inc.
    6. 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.
    7. Craig A. Gallet, 2014. "Can Price Get The Monkey Off Our Back? A Meta‐Analysis Of Illicit Drug Demand," Health Economics, John Wiley & Sons, Ltd., vol. 23(1), pages 55-68, January.
    8. Dhaval Dave, 2004. "Illicit Drug Use Among Arrestees and Drug Prices," NBER Working Papers 10648, National Bureau of Economic Research, Inc.
    9. Anderson, D. Mark & Rees, Daniel I., 2012. "Per Se Drugged Driving Laws and Traffic Fatalities," IZA Discussion Papers 7048, Institute of Labor Economics (IZA).
    10. 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.
    11. Niko de Silva & Benno Torgler, 2011. "Smoke Signals and Mixed Messages: Medical Marijuana & Drug Policy Signalling Effects," CREMA Working Paper Series 2011-18, Center for Research in Economics, Management and the Arts (CREMA).
    12. Kelly, Elaine & Rasul, Imran, 2014. "Policing cannabis and drug related hospital admissions: Evidence from administrative records," Journal of Public Economics, Elsevier, vol. 112(C), pages 89-114.
    13. Yunker, James A., 2012. "Estimated optimal drug law enforcement expenditures based on U.S. annual data," Journal of Policy Modeling, Elsevier, vol. 34(3), pages 356-371.
    14. Kenneth W. Clements & Xueyan Zhao, 2005. "Economic Aspects of Marijuana," Economics Discussion / Working Papers 05-28, The University of Western Australia, Department of Economics.
    15. 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.
    16. Kuziemko, Ilyana & Levitt, Steven D., 2004. "An empirical analysis of imprisoning drug offenders," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 2043-2066, August.
    17. van Ours, J.C., 2005. "Cannabis Use When it's Legal," Other publications TiSEM 88955fe2-81a7-4d37-8325-1, Tilburg University, School of Economics and Management.
    18. Niko de Silva & Benno Torgler, 2011. "Smoke Signals and Mixed Messages: Medical Marijuana & Drug Policy Signalling Effects," CREMA Working Paper Series 2011-18, Center for Research in Economics, Management and the Arts (CREMA).
    19. Gregory Conyers & Ian Ayres, 2020. "A lottery test of the effect of dispensaries on emergency room visits in Arizona," Health Economics, John Wiley & Sons, Ltd., vol. 29(8), pages 854-864, August.
    20. Jeremy Arkes & Rosalie Liccardo Pacula & Susan M. Paddock & Jonathan P. Caulkins & Peter Reuter, 2008. "Why the DEA STRIDE Data are Still Useful for Understanding Drug Markets," NBER Working Papers 14224, National Bureau of Economic Research, Inc.

    More about this item

    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

    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:bpj:bejeap:v:10:y:2010:i:1:n:11. 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: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    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.