License Quotas and the Inefficient Regulation of Sin Goods: Evidence From the Washington Recreational Marijuana Market

62 Pages Posted: 19 Jan 2019 Last revised: 27 Jan 2020

See all articles by Danna Thomas

Danna Thomas

University of South Carolina

Date Written: November 15, 2019

Abstract

This paper studies the welfare impacts of license quotas in markets for `"sin goods" and how their implementation creates inefficiency. Retail licenses are often geographically restricted rather than allotted to the most efficient areas and may be randomly distributed. To study this allocative inefficiency, I develop an entry model, estimating it using data from the Washington marijuana market. I find that free entry increases surplus 18% relative to a baseline simulation of Washington’s license regime. Geographic misallocation and random allocation account for 58% and 13% of this change, respectively. I also study tax policies that control for externalities of consumption.

Suggested Citation

Thomas, Danna, License Quotas and the Inefficient Regulation of Sin Goods: Evidence From the Washington Recreational Marijuana Market (November 15, 2019). Available at SSRN: https://ssrn.com/abstract=3312960 or http://dx.doi.org/10.2139/ssrn.3312960

Danna Thomas (Contact Author)

University of South Carolina ( email )

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