Weeding Out the Dealers? The Economics of Cannabis Legalization

68 Pages Posted: 28 Oct 2020

See all articles by Emmanuelle Auriol

Emmanuelle Auriol

University of Toulouse 1 - Toulouse School of Economics (TSE); University of Toulouse I - Advanced Research in Quantitative Applied Development Economics (ARQADE); CESifo (Center for Economic Studies and Ifo Institute)

Alice Mesnard

City University London

Tiffanie Perrault

University of Montreal - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: 2020

Abstract

We model consumer choices for cannabis in a risky environment and determine the supply of cannabis under prohibition and legalization. While introducing a legal market reduces the profits of illegal providers, it increases cannabis consumption. We show that this trade-off can be overcome by combining legalization with sanctions against users and suppliers of illegal products, and improvements to the quality of legal products. Numerical applications to the US highlight how our proposed policy mix can control the increase in cannabis consumption post-legalization and throttle the illegal market. The eviction prices we predict to drive dealers out of business are much lower than the prices of legal cannabis in the states that opted for legalization, leaving room for the black market to flourish. Analyzing the compatibility of several policy goals put forward in the public debate, including maximizing tax revenue and minimizing psychotropic consumption, we shed light on the less favorable outcomes of recent legalization reforms and suggest a new way forward.

Keywords: cannabis, legalization, crime, policy, regulation

JEL Classification: I180, K320, K420, L510

Suggested Citation

Auriol, Emmanuelle and Mesnard, Alice and Perrault, Tiffanie, Weeding Out the Dealers? The Economics of Cannabis Legalization (2020). CESifo Working Paper No. 8645, Available at SSRN: https://ssrn.com/abstract=3720402 or http://dx.doi.org/10.2139/ssrn.3720402

Emmanuelle Auriol (Contact Author)

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

University of Toulouse I - Advanced Research in Quantitative Applied Development Economics (ARQADE) ( email )

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Toulouse, 31000
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CESifo (Center for Economic Studies and Ifo Institute)

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Germany

Alice Mesnard

City University London ( email )

Northampton Square
London, EC1V OHB
United Kingdom

Tiffanie Perrault

University of Montreal - Department of Economics ( email )

C.P. 6128, succursale Centre-Ville
Montreal, Quebec H3C 3J7
Canada

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