Working Paper: CEPR ID: DP13814
Authors: Emmanuelle Auriol; Alice Mesnard; Tiffanie Perrault
Abstract: Can legalization of cannabis eliminate related organized crime? We model consumer choices for cannabis in a risky environment and determine the provision of cannabis, under prohibition and legalization. Although a legalization policy may crumble the profits from illegalproviders driving them out of business, it also increases cannabis use. In contrast, repression decreases cannabis consumption but strengthens the cartelization of criminal networks. Combining legalization with repression can strangle the black market while controlling the demand for cannabis. Based on evidence from the US, policy simulations are used to compute the price of legal cannabis that would achieve this dual objective and highlight the complementarities between repression and legalization. For example, with a 1% probability of arrest and a USD 2000 fine for illegal purchase, a legal price around USD 439 per ounce would evict illegal suppliers and increase the consumption by less that 25%. If the probability of arrest reaches 2%, the eviction price can go up to USD 622 and overall consumption increases by no more than 5:5%.
Keywords: cannabis; legalization; crime; policy; regulation
JEL Codes: I18; K32; K42; L51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Legalization of cannabis (K16) | decrease in organized crime (K42) |
| Legalization of cannabis (K16) | increase in cannabis consumption (E21) |
| Prohibition (K42) | decrease in cannabis consumption (Z28) |
| Prohibition (K42) | strengthen cartelization (L12) |
| Legalization + Repression (P37) | control black market activities (K42) |
| Legalization + Repression (P37) | manage cannabis demand (R22) |
| Higher probability of arrest (2%) (K42) | eviction price to USD 622 (R31) |
| Higher probability of arrest (2%) (K42) | maximum consumption increase of 55% (D12) |