Abstract

http://ssrn.com/abstract=880802
 
 

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The Market for Illegal Goods: The Case of Drugs


Gary S. Becker


University of Chicago - Department of Economics; University of Chicago - Booth School of Business

Kevin M. Murphy


University of Chicago; National Bureau of Economic Research (NBER)

Michael Grossman


National Bureau of Economic Research (NBER), NY Office; City University of New York Graduate Center


Journal of Political Economy, Vol. 114, pp. 38-60, February 2006
Revista de Economía Institucional, Vol. 8, No. 15, 2006

Abstract:     
This paper considers the costs of reducing consumption of goods by making their production illegal and punishing illegal producers. We use illegal drugs as a prominent example. We show that the more inelastic either demand for or supply of goods is, the greater the increase in social cost from further reducing its production by greater enforcement efforts. So, optimal public expenditures on the apprehension and conviction of illegal suppliers depend not only on the difference between the social and private values of consumption, but also on this elasticity. When demand and supply are no so elastic, it does not pay to enforce any prohibition unless the social value is negative. We also show that a monetary tax could cause a greater reduction in output and increase in price than optimal enforcement against the same goods if it were illegal, even though some producers may go underground to avoid a monetary tax. When enforcement is costly, excise taxes and quantity restrictions are not equivalent.

Note: Downloadable document is in Spanish.

Number of Pages in PDF File: 26

Keywords: illegal goods, illegal producers, drugs, monetary tax, decriminalization, elasticity, social cost

JEL Classification: E26, H21, K42, L51

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Date posted: February 7, 2006  

Suggested Citation

Becker, Gary S. and Murphy, Kevin M. and Grossman, Michael, The Market for Illegal Goods: The Case of Drugs. Journal of Political Economy, Vol. 114, pp. 38-60, February 2006; Revista de Economía Institucional, Vol. 8, No. 15, 2006. Available at SSRN: http://ssrn.com/abstract=880802

Contact Information

Gary S. Becker (Contact Author)
University of Chicago - Department of Economics ( email )
1126 East 59th Street
Chicago, IL 60637
United States
University of Chicago - Booth School of Business
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
Kevin M. Murphy
University of Chicago ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7280 (Phone)
773-702-2699 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Michael Grossman
National Bureau of Economic Research (NBER), NY Office ( email )
365 Fifth Avenue, 5th Floor
New York, NY 10016-4309
United States
212-817-7959 (Phone)
212-817-1597 (Fax)
City University of New York Graduate Center ( email )
365 Fifth Avenue, 5th Floor
New York, NY 10016
United States
212-817-7959 (Phone)
212-817-1597 (Fax)
Feedback to SSRN


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