The economics of (sea)weed

Unlike Mark Twain?s experience with New York, returning to Washington D.C. after an absence of a mere six months in April I found quite of bit of moral decadence: Cannabis had been legalized. To my chagrin, only its consumption, but not its sale, was allowed.

Interestingly enough, economists and the public-at-large differ a lot on their approach to legalization of marijuana and other similar ?soft drugs.? The former are generally against prohibition based purely on basic economic theory, whereas a non-economist?s stance will depend on his or her political views.

The Initiative on Global Markets, a research and thought platform of the University of Chicago?s Booth School of Business, asked its panel of academic experts whether they would agree with the following statement:

?The Netherlands? restrictions on soft drugs combined with a moderate tax aimed at deterring their consumption would have lower social costs than continuing to prohibit use of those drugs as in the U.S.? All strongly agreed or agreed.

The social costs refer to the drug-related crime and policing costs - as well as the health effects and accidents as a result of drug use. These pros and cons are summarized in a 1995 economic survey paper. Opponents particularly argue that legalization would increase consumption, especially among the young. In fact, several on the panel have noted that consumption would probably increase.

However, consumption may increase much less than the number of new users, as 80 percent of marijuana expenditures in the U.S. are made by just 20 percent of users - those who smoke pot daily. Most others would be first-timers, or those looking to get stoned on special occasions. Hospitals in Colorado and Washington, where sale of...