Why the War on Drugs Is Hard to Win
Tyler Cowen provides more evidence for the empirical hypothesis that Gary Becker, Michael Grossman, and Kevin Murphy are geniuses:
Marginal Revolution: Why the War on Drugs is hard to win: Here is a summary of forthcoming work by Gary Becker, Michael Grossman, and Kevin Murphy:
The authors demonstrate how the elasticity of demand is crucial to understanding the effects of punishment on suppliers. Enforcement raises costs for suppliers, who must respond to the risk of imprisonment and other punishments. This cost is passed on to the consumer, which induces lower consumption when demand is relatively elastic. However, in the case of illegal goods... where demand... [is] inelastic[,] higher prices lead... to an increase in total spending.... The authors argue that excise taxes and persuasive techniques such as advertising are far more effective uses of enforcement expenditures. "This analysis... helps us understand why the War on Drugs has been so difficult to win... why efforts to reduce the supply of drugs leads to violence and greater power to street gangs and drug cartels," conclude the authors. "The answer lies in the basic theory of enforcement developed in this paper."