Download Economists on Drugs

Economists on Drugs
Economic Analysis of Drug Policy
Brian Collins
Econ 539
June 6, 2007
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
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
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
Becker and Murphy continued
Weak rationality; future events heavily
discounted
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
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
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
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
gov’t only has to drive up price to match legal
market
Eliminates social costs/violence/some property
crime associated with the drug war
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
M+Z continued
Benefits of drug prohibition
– M+Z do not see many benefits because they
don’t 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
Such as these people…
M+Z
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
today’s disaster of drug prohibition
Glosses over the damage that drugs can cause
to people’s lives; they do not mention meth at all
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