Risks and Prices: The Role of User Sanctions in Marijuana Markets

Rosalie Liccardo Pacula, Beau Kilmer, Michael Grossman () and IV Frank Joseph Chaloupka ()

No 13415, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: User sanctions influence the legal risk for participants in illegal drug markets. A change in user sanctions may change retail drug prices, depending on how it changes the legal risk to users, how it changes the legal risk to dealers, and the slope of the supply curve. Using a novel dataset with rich transaction-level information, this paper evaluates the impact of recent changes in user sanctions for marijuana on marijuana prices. The results suggest that lower legal risks for users are associated with higher marijuana prices in the short-run, which ceteris paribus, implies higher profits for drug dealers. Additionally, the findings have important implications for thinking about the slope of the supply curve and interpreting previous research on the effect of drug laws on demand for marijuana.

JEL-codes: I18 K42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hea and nep-law
Date: 2007-09
Note: HE
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