Saturday, 31 March 2018

Medical marijuana laws decrease violent crime in the U.S.

Continuing this week's theme (e.g. see yesterday's post on medical marijuana and opiate harms), I recently read this new paper by Evelina Gavrilova (NHH Norwegian School of Economics), Takuma Kamada (Pennsylvania State), and Floris Zoutman (NHH Norwegian School of Economics), published in The Economic Journal (ungated earlier version here). In the paper, the authors look at the effect of medical marijuana laws on violent crime. They argue that medical marijuana laws lower the barrier to entry into the marijuana market for domestic firms, and that reduces the drug profits for Mexican drug trafficking organisations (DTOs), which are perpetrators of a significant amount of violent crime (in order to protect their high profits). They justify this by referring to DTOs as rational decision-makers weighing up costs and benefits:
The investment in violent activity can only be justified if the benefits exceed the costs. The benefits of violence depend on the revenue DTOs obtain when selling drugs. Intuitively, if revenues are high, the corresponding benefits of contesting those revenues through violence will also be high. Hence, for profit-maximising DTOs, optimal investment in violent capacity increases with the aggregate revenue DTOs make in the drug market.
Their assertion that reduced profits for DTOs arise from the entry into the market by smallholder marijuana farmers is backed up by the fact that prior to medical marijuana laws (MMLs) "[m]ost marijuana consumed in the US originates in Mexico", and a very simple demand-and-supply model that would be recognisable to my ECONS101 students (at least, in a couple of weeks, once we have covered demand and supply):
Figure 2 represents the market for marijuana. For simplicity we assume that illicit and medical marijuana are perfect substitutes in consumption, such that the supply and demand of both substances can be represented in a single figure. SDTO represents the supply curve for marijuana by DTOs. S0 represents the combined supply of marijuana by DTOs and local farmers that were already active prior to the introduction of an MML. An MML allows for entry of additional local farmers and thus shifts the combined supply to the right to S1. This results in a reduction in the price of the drug, an increase in the overall quantity and a reduction in the quantity sold by DTOs. The shaded area in the graph depicts the aggregate loss in revenues for DTOs.
Here is the Figure that they refer to:

Overall, they find that:
...MMLs lead to a strong reduction of 12.5% in the violent crime rate for counties close to the Mexican border. Moreover, within Mexican-border states, we find that the strongest decrease in the violent crime rate occurs in counties in close proximity to the border while the effect weakens with the distance of a county from the border. MMLs do not have a significant effect on crime in counties in inland states. 
When we conduct a spillover analysis we find that when a neighbour to a Mexican border state passes a MML, this results in a significant reduction in violent crime rates in the border state. More generally, we find that when a state passes a MML this reduces crime rates in the state in which the nearest Mexican border crossing is located. This evidence is consistent with our hypothesis that MMLs lead to a reduction in demand for illegal marijuana, followed by a reduction in revenue for Mexican DTOs, and, hence, a reduction in violence in the Mexican-border area.
Their results have clear policy implications:
The case of MMLs provides an important lesson for policymakers. Drug markets are well known for their violence. However, in the case of marijuana, when the supply chain of the drug is legalised, or at least decriminalised, a lot of the violence disappears and the business of organised crime structures is hurt.
Unlike the research I referred to yesterday, this paper didn't distinguish between when the MML was passed and when dispensaries became available. However, the results seem quite robust to a variety of alternative specifications, as detailed in the paper. The case for decriminalised marijuana seems to be strengthening with every new piece of research.

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