How increasing drug overdose deaths change the optimal drug policy

Charles Fain Lehman wrote an interesting article in National Affairs last month, about the US drug overdose crisis and policy. There is lots of economics in the article (and I encourage you to read it), but I want to focus on this bit:

Today's drug crisis, however, dramatically alters the balance of costs and benefits. Loss of life dwarfs all of the other costs imposed by drug use, on both the individual and society. As a consequence, the level of drug use that can be tolerated drops, particularly for those drugs that are most likely to lead to death. This means the amount of time and energy the government dedicates to the mitigation of drug use and addiction must increase substantially.

As I noted in yesterday's post about elk, we can use a model of marginal analysis to show the optimal quantity of something. We can also use the same model to show what happens to the optimal quantity when the costs or the benefits of the activity change. Lehman's main argument in the article is that the current US drug crisis has rebalanced the costs of drug use towards overdose deaths, massively increasing the cost to society of drug use.

So, consider a model of the quantity of drug use (at the societal level), as shown in the diagram below. There are two ways to think about this model. First, we could consider the marginal costs and marginal benefits of drug use. The marginal benefit (MB) of drug use is the additional benefit a drug user gets from consuming one more dose of the drug. The marginal benefit of drug use decreases as the drug user consumes more, due to satiation (which, literally, means getting full as you eat more). Each drug user benefits from consuming more drugs, but each dose of drugs they consume doesn't provide them with as much benefit as earlier doses. The marginal cost (MC) of drug use is the additional cost a drug user faces from consuming one more dose of the drug. The marginal cost of drug use increases as the drug user consumes more, due to increasing opportunity cost. As the drug user consumes more drugs, they have to divert more resources to drug use, and the amount and/or value of resources they give up for drug using increases as they consume more. On top of that, the drug user faces increasingly negative health consequences as their drug use continues. The optimal quantity of drug use occurs at the quantity where marginal benefit is exactly equal to marginal cost (for more on this, read yesterday's post).

Before the current drug overdose crisis, the marginal costs of drug use are shown by the curve MC0. The optimal quantity of drug use is Q0 (which is the quantity where MB is equal to MC0). Now, during the drug overdose crisis, the marginal costs of drug use are much higher (MC1), and the optimal quantity of drug use is lower (Q1, which is the quantity where MB is equal to MC1). This is the argument that Lehman is making, and later in the article he argues that because the costs (to society) of drug use have increased, and the optimal quantity of drug use is now lower, the US needs to find more effective tools for reducing drug use.

Not everyone will agree with Lehman's policy prescription (he is in favour of compulsory drug treatment, for example), but it seems fairly clear that in order to get down to the new (and lower) optimal level of drug use, some policy prescription (pun intended!) is required.

[HT: Marginal Revolution]