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The price elasticity of marijuana demand: evidence from crowd-sourced transaction data

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  • Adam J. Davis

    (ADM Energy)

  • Karl R. Geisler

    (New Mexico State University)

  • Mark W. Nichols

    (University of Nevada, Reno)

Abstract

This paper uses crowd-sourced transaction data from a cross section of the USA to examine demand for marijuana. State and regional variations in consumption, price, and quality are also explored. Our data are a unique cross section of over 23,000 actual marijuana transactions where price, quantity, and quality are reported, allowing for an estimation of the full demand elasticity rather than the participation elasticity. In addition, we account for the endogeneity of price by using instrumental variable estimation to calculate price elasticity. Price elasticity of demand estimates ranges between $$-$$ - 0.67 and $$-$$ - 0.79. Noticeable price differences are found between high-, medium-, and low-quality marijuana, with high-quality marijuana, at $13.77 per gram, 144 % greater than low-quality marijuana, at $5.63 a gram. Significant price variation is also found by medical marijuana status and census region, although this variation depends critically on the quality of the marijuana.

Suggested Citation

  • 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.
  • Handle: RePEc:spr:empeco:v:50:y:2016:i:4:d:10.1007_s00181-015-0992-1
    DOI: 10.1007/s00181-015-0992-1
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    3. A. Ramirez-Hassan & C. Gomez & S. Velasquez & K. Tangarife, 2023. "Marijuana on Main Streets? The Story Continues in Colombia: An Endogenous Three-part Model," Papers 2306.10031, arXiv.org.
    4. Anderson, D. Mark & Rees, Daniel I., 2021. "The Public Health Effects of Legalizing Marijuana," IZA Discussion Papers 14292, Institute of Labor Economics (IZA).
    5. Muhammad Salar Khan & Paul N. Thompson & Victor J. Tremblay, 2020. "Marijuana tax incidence, stockpiling, and cross-border substitution," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(1), pages 103-127, February.
    6. Emmanuelle Auriol & Alice Mesnard & Tiffanie Perrault, 2023. "Weeding out the Dealers? The Economics of Cannabis Legalization," Post-Print hal-04234940, HAL.
    7. 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.

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