The Economic Theory of Illegal Goods: The Case of Drugs / Gary S. Becker, Kevin M. Murphy, Michael Grossman.

Format:

Book

Author/Creator:

Becker, Gary S.

Contributor:

National Bureau of Economic Research.

Murphy, Kevin M.

Grossman, Michael.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10976.

NBER working paper series no. w10976

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

The Economic Theory of Illegal Goods

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

This paper concentrates on both the positive and normative effects of punishments that enforce laws to make production and consumption of particular goods illegal, with illegal drugs as the main example. Optimal public expenditures on apprehension and conviction of illegal suppliers obviously depend on the extent of the difference between the social and private value of consumption of illegal goods, but they also depend crucially on the elasticity of demand for these goods. In particular, when demand is inelastic, it does not pay to enforce any prohibition unless the social value is negative and not merely less than the private value. We also compare outputs and prices when a good is legal and taxed with outputs and prices when the good is illegal. We show that a monetary tax on a legal good could cause a greater reduction in output and increase in price than would optimal enforcement, even recognizing that producers may want to go underground to try to avoid a monetary tax. This means that fighting a war on drugs by legalizing drug use and taxing consumption may be more effective than continuing to prohibit the legal use of drugs.

Notes:

Print version record

December 2004.