pop-economics, drugsIs there evidence-based research in the peer-reviewed literature on the economics of legalising intoxicants that have different statuses in different countries (or across different times)? I’m thinking of total welfare, aggregated across:
Gary Becker has some extensive analysis on this in his various writings. Here's Gary's comments on a Cato Institute analysis:
A recent monograph published by the libertarian Cato Institute—Jeffrey A. Miron and Katherine Waldock, The Budgetary Impact of Ending Drug Prohibition (2010), available at www.cato.org/pubs/wtpapers/DrugProhibitionWP.pdf--offers an estimate of the budgetary cost to the U.S. government (federal, state, and local) of the federal and state legal prohibitions against the sale and use of marijuana, cocaine, heroin, and other mind-altering drugs. The lead author, Jeffrey Miron, has an economics Ph.D. from MIT and lectures in economics at Harvard; he has published extensively on the economics of the drug prohibition. His coauthor is a doctoral candidate at NYU’s business school. I will summarize the monograph and then offer some thoughts of my own on the question of legalizing the illegal drugs.
The authors estimate that legalizing these drugs (which would require repealing both federal and state prohibitions) would reduce government expenditures by $41.3 billion per year, with about two-thirds of the savings accruing to state and local government. The savings would involve reductions in police expenditures, in prosecutorial and judicial expenditures, and in jail and prison expenditures. The authors estimate the reductions by multiplying the various expenditure categories by the percentage of arrests, prosecutions, and prison terms that are attributable to drug offenses. This is a crude method of estimation, because different types of criminal offense involve different amounts of police, prosecutorial and judicial, and prison resources; for example, the length of imprisonment for a particular type of offense is the best estimator of the prison costs for that offense, and the length varies across types of offense.
In addition to reducing expenditures on law enforcement, legalizing the illegal drugs would, the authors argue, increase tax revenues (federal, state, and possibly local as well); they estimate the increase at $46.7 billion a year.
The Economist did a superb review of the costs of illegal drugs in 2001. The feature requires subscription, but I include some notable quotes.
From the editorial, perhaps the most telling comment:
Illegality also puts a premium on selling strength: if each purchase is risky, then it makes sense to buy drugs in concentrated form. In the same way, Prohibition in the United States in the 1920s led to a fall in beer consumption but a rise in the drinking of hard liquor.
In other words, if what you're doing is illegal anyway, may as well go for the jugular. And, no matter how much governments spend on prohibition, the profits are better:
If a kilogram of cocaine retails for upwards of \$110,000, the exporter can easily afford to double the few hundred dollars paid to the grower without much damage to his overall margin. Attempts to persuade growers to switch to planting pineapples are equally doomed: the cocaine exporters can readily outbid any reasonable scheme. ... The costs of seizure are small compared with the profits. Earlier this year, the US Coastguard seized two vast shipments of cocaine, one of 8 tonnes and the other of 13 tonnes. Together, they could have supplied 21m retail sales. To the astonishment of law-enforcement officers, the retail price of cocaine did not appear to budge. The enormous street value of the product makes it extremely cheap to ship. As Mr Reuter puts it, “A pilot who demands \$500,000 for flying a plane with 250 kilograms is generating costs of only \$2,000 per kilogram—less than 2% of the retail price. Even if a \$500,000 plane has to be abandoned after one flight, it adds only another \$2,000 to the kilogram price.”
On taxing drugs:
But there is another, more mundane cost that should be taken into account: the loss of potential revenue. One of the main reasons Prohibition eventually came to an end in America was that it yielded no tax revenues. Likewise, prohibition of drugs hands over to criminals and rogue states a vast amount of revenue—say \$80 billion-100 billion a year, based on the gap between rich-world import prices and retail prices—that governments could otherwise tax away and spend for the common good.
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