Weeding out the Dealers? The Economics of Cannabis Legalization

Emmanuelle Auriol, Alice Mesnard and Tiffanie Perrault

No 8645, CESifo Working Paper Series from CESifo

Abstract: We model consumer choices for cannabis in a risky environment and determine the supply of cannabis under prohibition and legalization. While introducing a legal market reduces the profits of illegal providers, it increases cannabis consumption. We show that this trade-off can be overcome by combining legalization with sanctions against users and suppliers of illegal products, and improvements to the quality of legal products. Numerical applications to the US highlight how our proposed policy mix can control the increase in cannabis consumption post-legalization and throttle the illegal market. The eviction prices we predict to drive dealers out of business are much lower than the prices of legal cannabis in the states that opted for legalization, leaving room for the black market to flourish. Analyzing the compatibility of several policy goals put forward in the public debate, including maximizing tax revenue and minimizing psychotropic consumption, we shed light on the less favorable outcomes of recent legalization reforms and suggest a new way forward.

Keywords: cannabis; legalization; crime; policy; regulation (search for similar items in EconPapers)
JEL-codes: I18 K32 K42 L51 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-law
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Related works:
Journal Article: Weeding out the dealers? The economics of cannabis legalization (2023)
Working Paper: Weeding out the Dealers? The Economics of Cannabis Legalization (2023)
Working Paper: Weeding out the Dealers? The Economics of Cannabis Legalization (2023)
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