Why Changes in Price Matter When Thinking About Marijuana Policy: A Review of the Literature on the Elasticity of Demand

Abstract

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.

The effects of perceived quality on behavioral economic demand for marijuana: A web-based experiment

“…Pacula and Lundberg (2014) stress the importance of studying regular or heavy users when examining demand for marijuana. Using such a sample, we demonstrated demand was influenced by marijuana quality, with both the shape of the demand curves and corresponding indices varying predictably as a function of quality.…”

“…By extension, the long-term effects of lower prices could lead to greater numbers of dependent users (Becker et al, 1991). It is worth noting that along with price and quality, other factors such as legal risk and perceived harm influence demand for marijuana (Pacula and Lundberg, 2014). Our findings also highlight the value of conceptualizing LG, MG, and HG marijuana as “a different good” (Olmstead et al, 2015, p. 64), because price sensitivity and other aspects of demand were affected by perceived quality.…”

The potential impact of cannabis legalization on the development of cannabis use disorders

“…However, enacting effective taxation policy is challenging, as much remains unknown about this nascent industry, and increased tax revenue must be balanced against the behavior of black markets in response to such policies (Caulkins et al, 2012). Of note, price may differentially impact frequency of use and the development of use disorders among various cannabis user subgroups (Pacula and Lundberg, 2014). How to use taxation to most effectively mitigate the prevalence and incidence of excessive use, adverse effects, and use disorders in the population will require careful thought and additional study.…”

“…Removing legal risks can impact population-level cannabis use by restructuring economic demand and changing patterns of use over time (Pacula and Lundberg, 2014). Enactment of medical cannabis laws has been tied to a significant portion of high school students indicating that they would either try cannabis or use more cannabis if it became legal in their state (Palamar et al, 2014).…”

Do consumers substitute opium for hashish? An economic analysis of simultaneous cannabinoid and opiate consumption in a legal regime

“…Economists have formulated models of addiction to study this topic (Becker and Murphy, 1988; Boyer, 1983), and there is a large empirical literature that examines how changes in prices of drugs and incomes of consumers are associated with their consumption (Becker, et al, 1991; Gallet, 2014; Pacula and Lundberg, 2014; Van Ours, 2007; Van Ours and Williams, 2007). The substances that have received the most attention are legal substances, such as nicotine and alcohol, for which product price data are reliable and readily available (Bader et al, 2011; Chaloupka, et al, 2002; Chaloupka, 1999).…”