The Law of Unintended Consequences: The Economics of Prohibition

The prohibition of economic activity rarely eliminates the market demand and supply of the goods and services under question.  What the prohibitions do produce are unintended consequences in the production and distribution of the good or service.  One of the consquences is an increase in the per unit potency of the good.  The best recent work on these issues is Mark Thornton's The Economics of Prohibitions.

Does this graph confirm Thornton's main findings in his book?

Comments

[Stephen]

There is definitely a correlation.

http://www.norml.org/share/marijuana_arrests_chart.gif

...however, causation is more difficult to prove. Consumers may have simply gotten more sophisticated and thus are demanding better product, which might be linked to a general upward trend in marijuana use, which may have triggered the recent clampdown by the government on pot smokers.

Another thing you have to worry about is the government giving bad numbers - either purposefully, or by accident. For example, they might just be getting better at catching the domestic grow operations – or perhaps worse at catching the cartels. Or maybe better at catching white college dealers who usually sell high quality stuff, whereas they're not enforcing the laws against poor black kids selling shitty brick weed on the streets as harshly. I know that some of the people at NORML believe this is true - that the monitoring by the federal government isn't very good, and this is the real reason for the supposed rise in quality.

One other problem with the a priori logic is that lower quality weed does not need to be packaged as well, and thus its shipment volume per unit of "high" might not be that much different from that of higher quality marijuana (cheap weed often comes in "bricks," whereby the weed is packed much more densely, whereas more expensive weed comes in larger buds that cannot be packed as densely).

Another confounding factor is that cheap weed and premium weed come from different places – most expensive stuff is produced domestically in sophisticated grow operations, whereas cheap weed is produced en masse outdoors, either in Mexico or in US National Parks, by Mexican cartels. I'm not sure which way this would push the a priori argument though, considering that cheap weed is difficult to transport in that it has to be smuggled across a border, whereas expensive weed is more difficult to grow in the first place due to better monitoring of grow houses in the US as opposed to in Mexico.

As with many things relating to illegal markets, the data's very incomplete and drawing conclusions is difficult.

[Jay Chambers]

Bingo. Same can probably be said about the alcohol prohibition. Ban the diluted beverage of alcohol and suddenly the value of an easier to hide, cheaper to produce high-content alcohol like wisky or whatever grows in demand.

[Jay Chambers]

The diluted beverage of beer, I meant. (Along with everything else, of course.)

[Michael Wiebe]

As I understand it, the argument is basically that heavy, bulky drugs are easier to detect, and so are riskier to produce. To reduce risk, entrepreneurs produce low-mass, low-volume, high-potency drugs.

So under prohibition, we should expect potency to increase.

[king mises]

Michael,

That is correct.

[John]

Also, penalties for supply and possession of illegal drugs tend to be linked to the amount (ie weight) of drugs found, so it makes sense to reduce the quantity of the substance required to get high

[Stephen]

Also, penalties for supply and possession of illegal drugs tend to be linked to the amount (ie weight) of drugs found, so it makes sense to reduce the quantity of the substance required to get high

This theory in reality doesn't hold up perfectly though. If it were true, we'd expect even retail sales of cocaine and heroin to be 100% pure, but they're far from it.

This could be due to the problem of adverse selection, which is solved to some extent by repeat buys and reputation. In poor areas where the police have basically ceded the streets to drug dealers you have brands and different groups of sellers who have a reputation for good or bad quality, and in the upper segments of the market where deals are made between friends behind closed doors you also have reputation to go on.

[Current]

I have a curious link between this and the other threads on money.

A couple of years ago I broke someone's guitar in a party. I was asked to pay for the repairs in weed. The owner had contacted a guitar repairer who preferred to be paid that way.

On Heroin and Cocaine. There are other reasons to cut it that to reduce the potency. It can be cut with cheaper drugs that add to or change the effects.

[Mark Thornton]

Thanks for the update Pete and for plugging the book. LvMI brought the book back into print and it will soon be available in Italian. Mark

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[Gajoo]

As I understand it, the argument is basically that heavy, bulky drugs are easier to detect, and so are riskier to produce. To reduce risk, entrepreneurs produce low-mass, low-volume, high-potency drugs.

[Mike Pikolo]

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