Abstract
Alchian and Allen (1964) theorized that the imposition of a fixed fee or a unit cost in a market with multiple quality grades of the good would encourage consumption of the higher quality grades. Using newly available data on marijuana prices by state, we empirically test the hypothesis that the price of higher quality marijuana will be higher in states with more strict enforcement of marijuana possession laws. Consistent with the Alchian-Allen theorem, the relative price of both medium- and high-quality marijuana are found to be greater in states with stricter law enforcement, suggesting an increase in demand for such varieties.
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Notes
A referee expressed concerns regarding our fixed cost treatment of marijuana possession. We have spoken with a small sample of police departments concerning the possibility that they may vary enforcement based on potency. The response we received is that they do not even test for marijuana potency because such a test provides no benefits to the prosecution. That is, higher potency marijuana is not associated with greater penalties. As such, police departments focus more on large scale operations rather than high potency operations, although there may be a high correlation between the two. Further, the officers indicated that they do not consider quality or potency at all in their enforcement decisions. As such, we believe our fixed cost treatment of marijuana possession is justified.
The relative cost of high quality marijuana, including both the money price and law enforcement risks, would still fall as predicted by Alchian-Allen.
In a related context, Freeborn (2009), motivated by the theory of arrest avoidance, found that the pure-gram price of cocaine is positively related to the enforcement of cocaine consumption laws.
All data from PriceofWeed.com were downloaded from the website on May 24, 2011.
As a robustness check, the model was also re-estimated replacing economic freedom with state demographic variables (percent minority, percent aged 15–24, and median household income). This substitution did not influence the results in any significant way.
Sources: Smoking Prevalence: 2009 figures used from the CDC’s Behavioral Risk Factor Surveillance System (BRFSS). Percent Minority: Percent non-white, 2009, Census Population Estimates. Percent 15–24: 2009 Census Population Estimates. Alcohol Prevalence: Percent of population who have consumed alcohol in past 30 days, BRFSS.
Spatial Autoregressive (SAR) and Spatial Durbin Models (SDM) were estimated in addition to the SEM; however, the spatial autoregressive parameter was never statistically significant.
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Acknowledgments
The authors would like to thank participants at the 2011 Association for Private Enterprise Education (APEE) for helpful comments on an earlier version of this paper.
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Lawson, R.A., Nesbit, T.M. Alchian and Allen Revisited: Law Enforcement and the Price of Weed. Atl Econ J 41, 363–370 (2013). https://doi.org/10.1007/s11293-013-9392-0
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DOI: https://doi.org/10.1007/s11293-013-9392-0