Abstract
We model consumer choices for recreational cannabis in a risky environment and its supply under prohibition and legalization. While legalization reduces the profits of illegal providers, it increases cannabis consumption. This trade-off can be overcome by combining legalization with sanctions against the black market, and improvements to the quality of legal products. Numerical calibrations highlight how a policy mix can control the increase in cannabis consumption and throttle the illegal market. In the US, the eviction prices we predict to drive dealers out of business are much lower than the prices of legal cannabis in most of the states that opted for legalization, leaving room for the black market to flourish. Analyzing the compatibility of several policy goals sheds light on the less favorable outcomes of recent legalization reforms and suggests a new way forward.
Keywords
Recreational cannabis,; Legalization,; Crime; Policy; Regulation;
JEL codes
- I18: Government Policy • Regulation • Public Health
- K32: Environmental, Health, and Safety Law
- K42: Illegal Behavior and the Enforcement of Law
- L51: Economics of Regulation
Replaces
Emmanuelle Auriol, Alice Mesnard, and Tiffanie Perrault, “Weeding out the Dealers? The Economics of Cannabis Legalization”, TSE Working Paper, n. 23-1475, October 2023.
Reference
Emmanuelle Auriol, Alice Mesnard, and Tiffanie Perrault, “Weeding out the Dealers? The Economics of Cannabis Legalization”, Journal of Economic Behavior and Organization, n. 216, December 2023, pp. 62–101.
See also
Published in
Journal of Economic Behavior and Organization, n. 216, December 2023, pp. 62–101