Working Paper: NBER ID: w5713
Authors: Michael Grossman; Frank J. Chaloupka; Charles C. Brown
Abstract: This paper applies the rational addiction model, which emphasizes the interdependency of past, current, and future consumption of an addictive good, to the demand for cocaine by young adults in the Monitoring the Future Panel. The price of cocaine is added to this survey from the System to Retrieve Information from Drug Evidence (STRIDE) maintained by the Drug Enforcement Administration of the U.S. Department of Justice. Results suggest that annual participation and frequency of use given participation are negatively related to the price of cocaine. In addition current participation is positively related to past and future participation, and current frequency of use given participation is positively related to past and future frequency of use. The long-run price elasticity of total consumption (participation multiplied by frequency given participation) of -1.18 is substantial. A permanent 10 percent reduction in price due, for example, to the legalization of cocaine would cause the number of cocaine users to grow by slightly more than 8 percent and would increase the frequency of use among users by a little more than 3 percent. Surely, both proponents and opponents of drug legalization should take account of this increase in consumption in debating their respective positions.
Keywords: Cocaine; Addiction; Price Elasticity; Legalization
JEL Codes: I12; D12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Price of cocaine (P22) | Consumption of cocaine (D10) |
| Past consumption (D12) | Current consumption (E21) |
| Future consumption (E21) | Current consumption (E21) |
| Current participation (J22) | Past participation (J22) |
| Current frequency of use (L96) | Past frequency of use (C41) |
| Price of cocaine (P22) | Number of users (C89) |
| Price of cocaine (P22) | Frequency of use (C41) |
| Past frequency of use (C41) | Current frequency of use (L96) |
| Future frequency of use (C41) | Current frequency of use (L96) |