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The price elasticity of marijuana demand: evidence from crowd-sourced transaction data

Adam J. Davis, Karl R. Geisler and Mark Nichols
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Adam J. Davis: ADM Energy
Karl R. Geisler: New Mexico State University

Empirical Economics, 2016, vol. 50, issue 4, No 1, 1192 pages

Abstract: Abstract This paper uses crowd-sourced transaction data from a cross section of the USA to examine demand for marijuana. State and regional variations in consumption, price, and quality are also explored. Our data are a unique cross section of over 23,000 actual marijuana transactions where price, quantity, and quality are reported, allowing for an estimation of the full demand elasticity rather than the participation elasticity. In addition, we account for the endogeneity of price by using instrumental variable estimation to calculate price elasticity. Price elasticity of demand estimates ranges between $$-$$ - 0.67 and $$-$$ - 0.79. Noticeable price differences are found between high-, medium-, and low-quality marijuana, with high-quality marijuana, at $13.77 per gram, 144 % greater than low-quality marijuana, at $5.63 a gram. Significant price variation is also found by medical marijuana status and census region, although this variation depends critically on the quality of the marijuana.

Keywords: Elasticity; Marijuana demand; Instrumental variable estimation; D12 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/s00181-015-0992-1

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