Weeding Out the Dealers? The Economics of Cannabis Legalization

69 Pages Posted: 17 Feb 2022

See all articles by Alice Mesnard

Alice Mesnard

City University London

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)

Tiffanie Perrault

University of Montreal - Department of Economics

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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

Suggested Citation

Mesnard, Alice and Auriol, Emmanuelle and Perrault, Tiffanie, Weeding Out the Dealers? The Economics of Cannabis Legalization. Available at SSRN: https://ssrn.com/abstract=4037049 or http://dx.doi.org/10.2139/ssrn.4037049

Alice Mesnard (Contact Author)

City University London ( email )

Northampton Square
London, EC1V OHB
United Kingdom

Emmanuelle Auriol

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 )

21 Allee de Brienne
Toulouse, 31000
France
+33 5 61 12 85 89 (Phone)
+33 5 61 12 86 37 (Fax)

HOME PAGE: http://www.idei.asso.fr/English/ECv/CvChercheurs/E

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Tiffanie Perrault

University of Montreal - Department of Economics ( email )

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

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