Tuesday, January 17, 2006

Reinventing the wheel

The comment thread on Delong's post and the original Marginal Revolution post about the forthcoming (in the JPE) paper by Becker, Grossman and Murphy explaining that drug prohibition fails because demand for drugs is inelastic is filled with objections that this is hardly original and is old hat to anyone who has ever learned about elasticity. Too true. But you can't forget that a fair amount of economics is about refining and formalizing things which we think are obvious -- just to make sure it definitely and certainly holds together. Though you always feel a bit ripped off to work through math and graphs and find that you only learned modelling technique and not any actual insight into the world.

My thought about the paper is that while demand from addicts is plausibly inelastic, I wouldn't be surprised if demand among potential addicts is elastic: I'm much more likely to try cocaine if it costs $5 than if it costs $1000. This argues for the view that if price is pushed high enough, drug use will decline over time (a view the data probably disproves).

2 Comments:

Anonymous Dick said...

"I'm much more likely to try cocaine if it costs $5 than if it costs $1000. "

It seems to me that price has nothing to do with being likely to try a drug. First use almost always in a social setting. The drug - alcohol, cigarettes, crack, pot, heroine, estacy, etc - is there and furnished free by so-called friends. Peers get you hooked free-of-charge. Later on, when you have asserted your independence and individuality, you'll be paying the big bucks and you'll be furnishing.

7:52 AM  
Blogger henry said...

Well, it seems obvious that if a drug were $5 you would have a lot more people trying it than if it were $1000, if only for the reason that people will be far more willing to furnish free of charge a drug that didn't cost them very much.

But saying that you are more likely to do something if the price is reduced 200-fold is not much of an argument for elasticity. If the price of cocaine is cut in half will the number of new users per year double?

4:34 PM  

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