Regulation on coexisting legal and illegal markets with quality differentiation

Ken Yahagi ()
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Ken Yahagi: University of Tokyo

European Journal of Law and Economics, 2022, vol. 53, issue 2, No 4, 235-259

Abstract: Abstract This paper considers coexisting legal and illegal markets for goods with undesirable consumption externalities, such as marijuana markets. This paper introduces a quality differentiation between legal and illegal markets, e.g., product differentiation and its consumption externality, and investigates the effects of regulations such as taxation and quality control on legal markets and enforcement against illegal producers and consumers. This paper shows that these regulations of legal and illegal markets are likely to cause divergence between legal and illegal prices and may fail to reduce social costs.

Keywords: Legalization; Prohibition; Licensing; Drugs; Marijuana (search for similar items in EconPapers)
JEL-codes: K42 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10657-022-09724-x

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