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Three Facts About Marijuana Prices

  • Kenneth W. Clements

    (UWA Business School, The University of Western Australia)

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 Australian marijuana prices over the last decade and show that they have declined in real terms by almost 40 per cent. This decline is far above that experienced by most agricultural products. Why has this occurred and what are the implications? One possible reason is the adoption of hydroponic growing techniques that have enhanced productivity and lowered costs and prices. Another reason is that laws have become softer and penalties reduced. We find patterns in the 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. An exploratory analysis indicates the extent to which the price declines have stimulated marijuana consumption and inhibited the consumption of a substitute product, alcohol.

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Paper provided by The University of Western Australia, Department of Economics in its series Economics Discussion / Working Papers with number 04-06.

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Length: 36 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:uwa:wpaper:04-06
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Web page: http://www.business.uwa.edu.au/school/disciplines/economics

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  1. Pacula, Rosalie Liccardo, 1998. "Does increasing the beer tax reduce marijuana consumption?," Journal of Health Economics, Elsevier, vol. 17(5), pages 557-585, October.
  2. Henry Saffer & Frank Chaloupka, 1995. "The Demand for Illicit Drugs," NBER Working Papers 5238, National Bureau of Economic Research, Inc.
  3. Jeffrey A. Miron, 2003. "The Effect of Drug Prohibition on Drug Prices: Evidence from the Markets for Cocaine and Heroin," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 522-530, August.
  4. Kenneth W. Clements, 2004. "Three Facts About Marijuana Prices," Economics Discussion / Working Papers 04-06, The University of Western Australia, Department of Economics.
  5. 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.
  6. Jeffrey A. Miron, 1997. "The Effects of Alcohol Prohibition on Alcohol Consumption," Papers 0078, Boston University - Industry Studies Programme.
  7. Barten, Anton P, 1977. "The Systems of Consumer Demand Functions Approach: A Review," Econometrica, Econometric Society, vol. 45(1), pages 23-51, January.
  8. K.W. Clements & E.A. Selvanathan & S. Selvanathan, 1996. "Applied Demand Analysis: A survey," Economics Discussion / Working Papers 96-04, The University of Western Australia, Department of Economics.
  9. 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.
  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. 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.
  12. 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.
  13. 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.
  14. Motta, Massimo, 1997. "Advertising Bans," CEPR Discussion Papers 1613, C.E.P.R. Discussion Papers.
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  16. Selvanathan, Saroja, 1987. "A Monte Carlo test of preference independence," Economics Letters, Elsevier, vol. 25(3), pages 259-261.
  17. repec:cup:cbooks:9781107421479 is not listed on IDEAS
  18. 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.
  19. 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.
  20. 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.
  21. 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.
  22. 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.
  23. 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.
  24. 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.
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