Why Changes in Price Matter When Thinking About Marijuana Policy

A Review of the Literature on the Elasticity of Demand

Published in: Public Health Reviews, v. 35, no. 2, 2014

Posted on RAND.org on January 01, 2014

by Rosalie Liccardo Pacula, Russell Lundberg

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Research Question

  1. How responsive is marijuana consumption to changes in price and enforcement?

Recent debates regarding liberalization of marijuana policies often rest on assumptions regarding the extent to which such policy changes would lead to a change in marijuana consumption and by whom. This paper reviews the economics literature assessing the responsiveness of consumption to changes in price and enforcement risk and explicitly considers how this responsiveness varies by different user groups. In doing so, it demonstrates how most of the research has examined responsiveness to prevalence of use, which is a composite of different user groups, rather than level of consumption among regular or heavy users, which represent the largest share of total quantities consumed. Thus, it is not possible to generate reliable estimates of the impact of liberalizing policies on either tax revenues or harms, as these outcomes are most directly influenced by the amounts consumed by regular or heavy users, not prevalence rates.

Key Findings

  • Research on marijuana policy has inappropriately focused on prevalence of use, rather than on consumption among regular or heavy users.
  • One cannot reliably estimate how marijuana policies affect tax revenues or harms because these outcomes are most directly influenced by consumption among regular or heavy users, not by prevalence rates.

Recommendation

Be cautious interpreting projections of tax revenue from legalization of marijuana or anticipated changes in consumption, which are necessarily based on assumptions of what is currently known about the elasticity of demand for marijuana. Our knowledge here is significantly limited and tremendously uncertain.

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