Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Legalizing Harmful Drugs: Government Participation and Optimal policies

Legalizing Harmful Drugs: Government Participation and Optimal policies AbstractWe are currently witnessing a shift in the approach to combat traffic and consumption of illegal harmful drugs, being cannabis legalization a prominent example. In this paper, we study how to optimally regulate the market for cannabis, in a setting where consumers differ in their utility from consumption of the psychoactive component of cannabis, THC, and suffer from misperception of the health damage it causes. We analyze this problem through a vertical differentiation model, where a black market firm and a public firm compete in prices and qualities (THC content). A paternalistic government would like to correct for the misperceived health damage caused by cannabis consumption, as well as to reduce the size of the black market. It is the undesirability of black market profits what explains that the first-best allocation cannot be decentralized. We find two possible equilibria, depending on whether the public firm serves those consumers with the highest or lowest willingness to pay for quality. Paradoxically, when the public firm serves those consumers with higher taste for THC, a lower average health damage is achieved together with a better economic result for the public firm. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The B.E. Journal of Economic Analysis & Policy de Gruyter

Legalizing Harmful Drugs: Government Participation and Optimal policies

Download PDF
52 pages

Loading next page...
 
/lp/de-gruyter/legalizing-harmful-drugs-government-participation-and-optimal-policies-wv21OZWlYS
Publisher
de Gruyter
Copyright
© 2022 Walter de Gruyter GmbH, Berlin/Boston
ISSN
1935-1682
eISSN
1935-1682
DOI
10.1515/bejeap-2021-0309
Publisher site
See Article on Publisher Site

Abstract

AbstractWe are currently witnessing a shift in the approach to combat traffic and consumption of illegal harmful drugs, being cannabis legalization a prominent example. In this paper, we study how to optimally regulate the market for cannabis, in a setting where consumers differ in their utility from consumption of the psychoactive component of cannabis, THC, and suffer from misperception of the health damage it causes. We analyze this problem through a vertical differentiation model, where a black market firm and a public firm compete in prices and qualities (THC content). A paternalistic government would like to correct for the misperceived health damage caused by cannabis consumption, as well as to reduce the size of the black market. It is the undesirability of black market profits what explains that the first-best allocation cannot be decentralized. We find two possible equilibria, depending on whether the public firm serves those consumers with the highest or lowest willingness to pay for quality. Paradoxically, when the public firm serves those consumers with higher taste for THC, a lower average health damage is achieved together with a better economic result for the public firm.

Journal

The B.E. Journal of Economic Analysis & Policy – de Gruyter

Published: Jan 1, 2023

Keywords: legalization; cannabis; marijuana; optimal policies; government participation; H44; I18; L13; L51

There are no references for this article.