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

5. 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

9. 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

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

11. 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

12. Such as these people…

13. 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

14. 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