Wednesday, 28 March 2018

Are alcohol and cannabis substitutes or complements?

Continuing the theme for this week on alcohol and cross-price elasticities (see here and here), last month Eric Crampton wrote a post on the relationship between alcohol and cannabis:
It's been a bit of an open question whether legalised marijuana would lead to more or less alcohol use.  If the two goods are complements, say if people liked drinking while consuming cannabis, then any increase in cannabis use could yield greater alcohol use. If they were substitutes and people smoked instead of drinking, alcohol use could drop.
RAND surveys some of the more recent evidence. 
I won't replicate all of Eric's post here, but he quotes three of the key paragraphs from the RAND survey of the evidence. The short version is that the evidence is increasingly suggesting that cannabis and alcohol are substitutes. Substitutes are pairs of goods where an increase in the price of one good, increases demand for the other good (and similarly, a decrease in the price of one good decreases demand for the other good).

So, legalising cannabis (which would lower the market price of cannabis) would have the effect of increasing cannabis use, and decreasing alcohol use. This is an important result (if backed up in other studies), given the increasing calls for legalisation in New Zealand and elsewhere.

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