The Economic Theory of Illegal Goods: The Case of Drugs
This paper concentrates on both the positive and normative effects of punishments that enforce laws to make production and consumption of particular goods illegal, with illegal drugs as the main example. Optimal public expenditures on apprehension and conviction of illegal suppliers obviously depend on the extent of the difference between the social and private value of consumption of illegal goods, but they also depend crucially on the elasticity of demand for these goods. In particular, when demand is inelastic, it does not pay to enforce any prohibition unless the social value is negative and not merely less than the private value. We also compare outputs and prices when a good is legal and taxed with outputs and prices when the good is illegal. We show that a monetary tax on a legal good could cause a greater reduction in output and increase in price than would optimal enforcement, even recognizing that producers may want to go underground to try to avoid a monetary tax. This means that fighting a war on drugs by legalizing drug use and taxing consumption may be more effective than continuing to prohibit the legal use of drugs.
|Date of creation:||Dec 2004|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Saffer, Henry & Chaloupka, Frank, 1999.
"The Demand for Illicit Drugs,"
Western Economic Association International, vol. 37(3), pages 401-411, July.
- 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.
- Jonathan Gruber, 2000.
"Risky Behavior Among Youths: An Economic Analysis,"
NBER Working Papers
7781, National Bureau of Economic Research, Inc.
- MacCoun,Robert J. & Reuter,Peter, 2001. "Drug War Heresies," Cambridge Books, Cambridge University Press, number 9780521799973, December.
- Gary S. Becker & Kevin M. Murphy, 1993. "A Simple Theory of Advertising as a Good or Bad," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 941-964.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:10976. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.