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

Listed author(s):
  • Rosalie Liccardo Pacula
  • Beau Kilmer
  • Michael Grossman
  • Frank J. Chaloupka

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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File URL: http://www.nber.org/papers/w13415.pdf
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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
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. Patrick M. O'Malley & Michael Grossman & Frank J. Chaloupka, 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 & L. Johnston & M. 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," Review of Economic Studies, Oxford University Press, 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. 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.
  5. Chris Wilkins & Paul Sweetsur, 2006. "Exploring the Structure of the Illegal Market for Cannabis," De Economist, Springer, vol. 154(4), pages 547-562, December.
  6. 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.
  7. 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.
  8. Pacula, Rosalie Liccardo, 1998. "Does increasing the beer tax reduce marijuana consumption?," Journal of Health Economics, Elsevier, vol. 17(5), pages 557-585, October.
  9. 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.
  10. Jonathan P. Caulkins, 1997. "Modeling the Domestic Distribution Network for Illicit Drugs," Management Science, INFORMS, vol. 43(10), pages 1364-1371, October.
  11. 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.
  12. 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.
  13. 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.
  14. 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.
  15. MacCoun,Robert J. & Reuter,Peter, 2001. "Drug War Heresies," Cambridge Books, Cambridge University Press, number 9780521799973, February.
  16. 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.
  17. 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.
  18. 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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