Economics and Marijuana: Consumption, Pricing and Legalisation

Half-title......Page 3
Title......Page 5
Copyright......Page 6
Dedication......Page 7
Contents......Page 9
Figures......Page 10
Tables......Page 13
About the authors and contributor......Page 17
Acknowledgements......Page 18
1.1 Economic dimensions of marijuana......Page 21
1.2 The economic approach to drugs......Page 24
1.3 Overview of the book......Page 29
References......Page 32
2.1 Introduction......Page 35
NDSHS data......Page 39
Trends for consumption of marijuana and other drugs......Page 40
Who uses marijuana? Socioeconomic characteristics of users......Page 43
Who uses other related drugs?......Page 46
A probit model for participation in marijuana use......Page 49
Observed cross-drug correlation......Page 53
Multivariate probit models for multi-drug consumption......Page 55
Who are heavy users? Observed user characteristics by consumption levels......Page 65
A sequential model for levels of marijuana consumption......Page 69
Two types of zero observations......Page 73
A zero-inflated ordered probit model for marijuana consumption......Page 74
2.7 Conclusion......Page 83
References......Page 84
3 The pricing of marijuana......Page 87
3.1 Issues in drug prices......Page 88
3.2 Australian marijuana prices......Page 90
3.3 Regional disparities in prices......Page 93
3.4 Marijuana has become substantially cheaper......Page 99
3.5 Why did prices fall so much?......Page 104
3.6 Quantity discounts......Page 110
3.7 The discount elasticity......Page 114
3.8 Application to marijuana and other products......Page 116
Geography, technical change and prices......Page 122
The rule of six-tenths......Page 123
Pricing strategies......Page 124
Hedonics......Page 125
A3.1 The marijuana prices......Page 126
A3.2 An index of marijuana prices......Page 128
A3.3 Relative marijuana prices......Page 132
A3.4 More on regional disparities in prices......Page 135
A3.6 Prices from The Economist......Page 143
A3.8 Measuring relative changes......Page 147
A3.9 The econometrics of packaging......Page 150
A3.10 Hedonic regressions......Page 154
A3.11 Weighted hedonic regressions......Page 156
Notes......Page 158
References......Page 160
4 More on the economic determinants of consumption......Page 165
4.1 Two types of marijuana demand elasticities......Page 166
4.2 Marijuana consumption......Page 168
4.3 Comparison with alcohol consumption......Page 176
4.4 The price sensitivity of consumption, Part I: preliminary exploration......Page 180
4.5 The price sensitivity of consumption, Part II: a demand system......Page 185
4.6 Evidence from a special survey......Page 191
4.7 More on marijuana and alcohol......Page 198
4.8 A useful rule of thumb: price elasticities are about minus one-half......Page 201
4.9 Simulating consumption......Page 209
4.10 Concluding comments......Page 215
Marijuana prices in Australia......Page 216
A three-country comparison of usage......Page 218
A4.2 The alcohol data......Page 219
A4.3 Elements of consumption theory......Page 222
Comparative statics......Page 223
A4.4 A differential demand system......Page 225
Simplifications......Page 226
Interpretations......Page 228
The marginal utility of income......Page 230
An absolute price formulation......Page 231
A4.5 The structure of preferences......Page 232
Block structures......Page 233
Group demand......Page 235
Conditional demand......Page 236
Modified conditional demand......Page 238
Blockwise dependence......Page 239
Derivations......Page 240
A4.7 The Rotterdam model......Page 243
Unconditional demand......Page 244
A4.8 Some key empirical findings......Page 245
Preference independence......Page 246
The income flexibility......Page 247
Notes......Page 249
References......Page 250
5.1 Introduction......Page 255
Tax incidence......Page 257
Welfare economics of tax......Page 260
Pros and cons......Page 264
Prohibition in practice......Page 267
5.4 Australian marijuana laws and regulations......Page 269
5.5 Impact of decriminalisation: evidence from the US......Page 277
5.6 A survey of estimated decriminalisation effects in Australia......Page 278
5.7 Modelling the consumption of vice......Page 284
5.8 A demand system......Page 286
5.9 Data and parameters......Page 289
Budget shares, income elasticities, marginal shares and income flexibility......Page 290
What is known about vice interactions?......Page 291
First-pass price elasticities: preference independence......Page 292
Second-pass price elasticities: preference dependence......Page 293
5.10 Stochastic vice......Page 299
A decrease in marijuana prices......Page 303
An increase in tobacco and alcohol taxes......Page 310
5.12 Taxing marijuana......Page 311
Risk, taxes and marijuana pricing......Page 312
How does consumption change?......Page 315
How much revenue can be generated?......Page 324
Uncertainty of the results......Page 335
Previous studies......Page 340
5.13 More on the risk premium......Page 341
Marijuana and tobacco prices......Page 342
Markups illegal and legal......Page 344
A decomposition of drug prices......Page 347
Distribution of the risk premium......Page 348
Conclusion......Page 352
5.14 Summary......Page 354
A5.1 Data......Page 355
A5.3 Sensitivity analysis......Page 357
Notes......Page 362
References......Page 364
6.1 Introduction......Page 370
6.2 World food consumption......Page 372
6.3 Consumption patterns in rich and poor countries......Page 376
6.4 Explaining the differences......Page 378
6.5 International consumers......Page 382
6.6 Tastes and geography......Page 387
6.7 Alcohol idiosyncrasies?......Page 389
6.8 International drinking patterns I: budget shares......Page 393
6.9 International drinking patterns II: quantities and prices......Page 406
A6.1 The data and some further explorations......Page 415
Preference independence......Page 418
Combining the price terms......Page 421
Notes......Page 422
References......Page 423
7 Perspectives......Page 426
7.1 The supply of marijuana......Page 428
7.2 Globalisation......Page 433
Notes......Page 436
References......Page 437
Index......Page 438