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.

Read more:

• Medical marijuana dispensaries decrease opiate harm, but only if they're not too heavily regulated

Medical marijuana dispensaries decrease opiate harm, but only if they're not too heavily regulated

In a new paper by David Powell (RAND), Rosalie Liccardo Pacula (RAND), and Mireille Jacobson (University of California, Irvine) published in the Journal of Health Economics (ungated earlier version here) caught my attention this week, not least because it continues the theme of this week's posts (see here and here and here). In the paper, the authors investigate the impact of medical marijuana laws on opioid death rates, treatment admissions, the volume of legally distributed opioids, and non-medical use of pain relievers. In case you're unaware, opioid use has become a serious (and deadly) epidemic in the U.S. over the last decade. Figure 1 from the Powell et al. paper paints the picture, with opioid distribution and harms (treatment admissions and mortality) all climbing substantially since the late 1990s:

In their analysis, Powell et al. use data from the U.S. over the period from 1999 to 2013. Over this period, some states introduced medical marijuana laws, while others did not. The key difference between this study and earlier studies that have looked at similar questions is that this study correctly recognises that medical marijuana laws by themselves are unlikely to have any effect, so they look at changes when medical marijuana dispensaries became operative as well (rather than just when the State medical marijuana legislation passed).

They find:

...fairly strong and consistent evidence using difference-in-differences and event study methods that states providing legal access to marijuana through dispensaries reduce deaths due to opioid overdoses, particularly prior to the October 2009 Ogden memo when dispensary systems were not tightly regulated by the states. We provide complementary evidence that dispensary provisions lower treatment admissions for addiction to pain medications. We find in all cases that the effectiveness of having any medical marijuana law completely disappears when data after 2010 are included. Furthermore, while we show that legally protected and active dispensaries remain an important factor in reduced opioid harm, the magnitude of even this component of the policy has changed since 2010, when states more actively and tightly regulated marijuana dispensaries and as the opioid epidemic has shifted toward heroin consumption.

The final key point that makes this of relevance to my earlier posts on substitutes and complements is this:

In short, our findings that legally protected and operating medical marijuana dispensaries reduce opioid-related harms suggests that some individuals maybe substituting towards marijuana, reducing the quantity of opioids they consume or forgoing initiation of opiates altogether. 

In other words, the paper provides evidence that opioids and marijuana are substitutes, and making marijuana more easily available (and therefore, less costly) reduces demand for and use of opioids, and consequently reduces opioid-related harm. However, the most negative part of these results is that the effect disappears after dispensaries became more tightly regulated in 2010. Presumably, after that point it may have become too difficult for those at risk of opioid harm to obtain marijuana as a substitute. Maintaining looser regulation may have been a better option.

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.

Read more:

• Would a soda tax increase alcohol sales?
• Why the alcohol industry is a big supporter of self-driving cars

Would a soda tax increase alcohol sales?

Soda taxes (or taxes on sugar-sweetened beverages (SSB), if you prefer) have been in the news quite a bit recently. You can read some of the debate over whether soda taxes would be effective in fighting obesity here (Laurie Kubiak) and here (Boyd Swinburn). Eric Crampton also has a number of related blog posts (see here and here and here and here). The short version is that NZIER's report for the Ministry of Health suggests that soda taxes would be pretty ineffective.

In this post though, I want to focus on something else. Let's say a soda tax is effective, and people consume less soda. What will they consume instead? Will they switch to bottled water? Or to sugar-free beverages? Or maybe they will switch to alcohol? In other words, what will consumers substitute towards if soda is made more expensive with a tax?

A new paper in the Journal of Epidemiology and Community Health (ungated), by Diana Quirmbach (London School of Hygiene and Tropical Medicine) and others looks at exactly this question. Or rather, they look at whether consumers would purchase more alcohol if the price of soda increased. They used data on 6 million beverage purchases by nearly 32,000 UK households in 2012 and 2013, and estimate own-price elasticities for soda (separated into high-sugar, medium-sugar, and low-sugar varieties), and cross-price elasticities between soda (by type) and alcohol (beer, lager, cider, and spirits). They found that:

...own-price elasticities for non-alcoholic drinks are lower than for alcoholic beverages (that is, alcoholic drinks are more sensitive to price change), and that elasticities for all three SSB groups are inelastic (ie, smaller than 1), which means that there is a less than proportionate decrease in purchase following a price rise. This also compares with relatively inelastic (ie, insensitive) reactions to changes in the price of alcoholic drinks (except for lager for low- and medium income groups, and cider and wine for the high-income group)...

Increases in the price of high-sugar SSBs are associated with increased purchases of diet drinks, juice and lager (ie, they act as substitutes), whereas they decrease purchases of medium-sugar SSBs and spirits (ie, they act as complements). Increases in the price of medium-sugar SSBs impacts across a wider range (high-sugar SSBs, juice, water, beer, lager, wines and spirits), although all categories affected witness reduced purchasing (ie, a consistent complementary relationship of ~0.1% for a 1% price increase). Increases in the price of diet/low sugar SSBs increases the purchases for all other categories (with the exception of the two other SSB categories), ranging from 0.1% for juice to 0.7% for milk-based drinks and spirits per 1% price increase. 

In other words, a tax on soda (especially on high-sugar and diet/low-sugar sodas) would induce consumers to consume more alcohol. So, the overall effect of a soda tax on calories consumed (and hence, obesity and other health problems) is somewhat ambiguous, especially when you consider that alcohol is more energy-dense than sugary sodas. If people consume more alcohol as a result of a soda tax, the net impact on society may well be negative. Of course, this assumes that a soda tax is effective at all, which the NZIER report on the evidence thus far indicates is far from clear.

The Quirmbach et al. study does have some issues, which are common to most studies that try to estimate elasticities when prices are not directly observed. The main problems are well summarised in this article in The Conversation by Robin Room and Heng Jiang, and their main criticism is:

In principle, elasticity is about what happens over time when there is a change – such as a new tax – which results in a higher price.

But the study was not actually measuring the effects of change in price over time. Rather, it correlated how much one family bought of each beverage type when faced with a particular set of prices against how much another family bought of each beverage type with a different set of prices.

But because the study isn’t actually measuring and correlating the change that elasticities would measure – a new tax and the change in consumption over time – it offers no direct evidence of what would happen in case of a change like a new tax, and should not be interpreted as having done so.

In spite of the problems with the study, it does raise a valid question that requires further investigation. If we tax soda, should we be concerned about the negative impacts of what consumers would purchase instead?