Economists on Drugs

1
Economists on Drugs

• Economic Analysis of Drug Policy
• Brian Collins
• Econ 539
• June 6, 2007

2
Current Regime

• Prohibition, significant efforts at enforcement
• Drugs are treated as a crime problem
• Many have questioned the effectiveness
• No end in sight to the War on Drugs
• Lots of Economics Literature to Review

3
Sickles and Taubman (1991)

• Project to estimate a model of who uses various
  drugs and at what ages
• Used parallel lines regression model
• Found increases with being black or female
• Drug use highly correlated to higher incomes
  (budget constraint)
• Argues for attempting to increase the price of
  drugs

4
Becker and Murphy (1988)

• Theory of Rational Addiction
• People who are addicted are making a rational
  choice to consume large, sustained quantities of
  drugs
• Utility maximization wherein current utility is
  increased if drugs have been used in the past
• Large costs of quitting, must quit cold turkey

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Becker and Murphy continued

• Weak rationality future events heavily
  discounted

6
Stevenson (1994)

• Advocates Harm Reduction model
• Middle way between Prohibition and
  Decriminalizaiton/Legalization
• Education, Needle Exchanges, Prescribe Illegal
  drugs for Addicts
• Reduces costs of drug use
• Theoretically could increase drug use if drug
  users are rational
• Benefits Reduce spread of HIV, limits the
  illegal drug market since addicts are buying from
  pharmacies

7
Miron (2003)

• Argues that drug prices will not drop
  precipitously in the event of legalization
• Compares cocaine and heroin to chocolate and
  coffee
• Cocaine 262 times the cost of main ingredient
• Hot Chocolate 441 times the cost
• Base ingredients have smaller differential
• Illegal goods have lower regulatory, tax costs

8
Becker and Murphy (2006)

• Why the drug war is a failure
• When demand is inelastic, the costs of
  prohibition will always exceed the benefits
• Resources spent on enforcement drive up price of
  drugs, driving increase in resources to supply,
  creating enormous payoffs for marketers who
  supply and evade enforcement
• Never-ending escalation of the drug war

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Becker and Murphy continued

• Government could achieve the same or better
  reduction in quantity of drugs consumed with
  legalization coupled with appropriate excise
  taxes
• Enforcing against tax evaders much easier, b/c
  govt only has to drive up price to match legal
  market
• Eliminates social costs/violence/some property
  crime associated with the drug war

10
Miron and Zweibel (1995)

• Advocates for legalization w/o high taxation
• Cost-benefit analysis
• Costs of prohibition
• Massive violence b/c drug marketers cannot use
  the legal system
• Deaths due to impure drugs
• Property Crime
• Violation of liberty

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MZ continued

• Benefits of drug prohibition
• MZ do not see many benefits because they dont
  think that drug use is that bad anyway
• Heroin users can be addicted for decades and live
  normal, functional lives
• People can use cocaine and still be upstanding,
  successful citizens

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Such as these people
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MZ

• Argue legalized marijuana would reduce drunk
  driving
• America did not have problems with drugs before
  they were banned in 1914
• Disaster of alcohol prohibition is analogous to
  todays disaster of drug prohibition
• Glosses over the damage that drugs can cause to
  peoples lives they do not mention meth at all

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Analysis

• Change to U.S. policy unlikely
• Harm reduction probably has the best chance
• Argument for legalization and strong taxation is
  compelling in light of the failure of the current
  policy to eliminate drugs and the related
  problems
• Public health model (starting with HR) makes sense