Chapter 8
Crime and Drugs: A Modern Dilemma
What's in This Chapter and Why
This chapter introduces the concept of a public good and contends that the establishment and
enforcement of a system of property rights is a public good. It argues that the efficient provision of
public goods requires government intervention. Therefore, a private market system cannot provide
public goods efficiently. The existence of property rights enforceable by government leads to
crime. So the chapter discusses the efficient level of crime control.
Within this context, the issue of drug use and abuse is raised. Normative and positive aspects
of drug control are discussed. Demand and supply analysis is the main tool. The chapter
emphasizes the unintended consequences of drug prohibition and drug legalization.
Instructional Objectives
After completing this chapter, your students should know:
1.
2.
3.
4.
5.
6.
7.
What a public good is and why the existence of public goods leads to a role for government.
Why the establishment of a system of property rights is important.
That property rights provision is a public good.
Why the efficient level of crime is not zero.
The normative arguments for and against drug legalization.
The consequences of drug prohibition.
The consequences of drug legalization.
Key Terms
These terms are introduced in this chapter:
Public good
Nonexcludable good
Nonrival good
Free rider
Suggestions for Teaching
This topic can generate significant discussion. The question of why the sale of some types of drugs
is allowed but not of others interests students. Many students will agree that alcohol prohibition
was a failure and some of the same ones will argue that cocaine prohibition can work. Of course,
they may be right. The heroin epidemic of the 1960s and 1970s apparently was contained.
One way to take the class is to a discussion of other "crimes" that result because certain
behavior among consenting adults is outlawed. The general issuebe it abortion, drugs, gambling,
or whatever--almost certainly will be topical for the foreseeable future.
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Instructor's Manual  107
Additional References
In addition to the references in the text, instructors may wish to read or assign one or more of the
following:
1. "Bring Drugs within the Law" and "Drug Policy: the Enemy Within," The Economist (May
1993), pp. 13-14 and 31.
2. Edwin J. DeLattre, "New Faces of Organized Crime," The American Enterprise 1 (May/June
1990), pp. 38-45.
3. Peter Kerr, "The Detoxing of Prisoner 88AO802," The New York Times Magazine (June 27,
1993), pp. 23-27 and 58-59.
4. Ethan A. Bodelman and David T. Courtwright, "Should We Legalize Drugs? History
Answers," American Heritage (February 1993), pp. 41-48.
5. Edward J. Nell, "The Dynamics of the Drug Market," Challenge (March 1994), pp. 13-21.
6. Robert P. Thomas, Economics: Principles and Applications, Chapter 5, "The Economics of the
Public Sector" (Hillsdale, Ill.: Dryden Press, 1990), pp. 174-223.
7. Timothy Tregarthen, "The Drug War: Battling Supply and Demand," The Margin 5
(January/February 1990), pp. 17-22.
Outline
I. PUBLIC GOODS
A. Definitions and General Comments
1. A public good is a good that is nonexcludable and nonrival.
a. A nonexcludable good is a good for which it is impossible or extremely costly to
exclude nonpayers from consumption.
b. A nonrival good is a good for which availability is unaffected by an individual's
consumption.
2. Government can provide a public good more effectively than the private market.
a. It is costly to exclude people from the benefit of a public good.
1. A private supplier would have to identify individuals benefiting from the good
and then charge them according to the benefit received.
2. Government receives payment for provision of the good through taxation.
b. With private provision of the public good there may be privacy costs involved in
monitoring use of the good.
c. A private supplier would provide too little of the good.
1. The marginal cost of providing an additional unit of a public good is zero;
however, a private firm would charge a price greater than this marginal cost.
a. Since price is greater than marginal cost, society's net benefits are not
maximized.
B. Government Enforcement of Property Rights
1. Definitions and General Comments
a. A decentralized market economy requires the establishment of property rights.
1. The existence of property rights allows voluntary market transactions to work
well.
108  Chapter 8/Crime and Drugs: A Modern Dilemma
2. Government establishes and protects property rights more efficiently than private
firms.
a. Private protection can result in the free rider problem.
1. A free rider is someone who uses the goods or services provided by others
without paying for them.
2. The free rider problem means that too little of the good is provided.
b. It is generally cheaper to have a single agency provide property rights.
c. The protection of property rights probably requires coercion.
1. Many individuals believe coercive powers should be reserved for
representative government rather than private individuals.
d. Since the marginal cost of property rights is zero, private provision results in too
little of the good being produced.
II. CRIME AND CRIME CONTROL
A. An Economic Approach to Crime and Crime Control
1. In order to provide the efficient level of crime control, government must equate
marginal social cost with marginal social benefit.
a. The marginal social benefit of crime control decreases as the number of crimes and
the probability of being a victim decreases.
1. As the probability of being a victim falls, people are willing to pay less for
additional decreases in criminal activity.
b. The marginal social cost of crime control increases as the number of crimes and
the probability of being a victim decreases.
1. To obtain additional decreases in criminal activity, more resources must be
devoted to crime control.
a. Because the opportunity cost of additional resources increases, the
marginal social cost of crime control will increase.
2. The lower the crime rate, the greater the amount of resources used to reduce
this rate by a given amount.
3. The lower the crime rate, the more freedom citizens must sacrifice in order to
gain additional reductions in crime.
2. Because efficiency requires equating marginal social benefit and marginal social cost,
the efficient level of crime will generally be greater than zero.
B. A Comparison of Crime Trends in the United States and England
1. For most crimes, crime rates are lower in the U.S. than in England.
2. Since 1981, almost all types of U.S. crime rates have fallen, while English crime rates
have remained stable or increased.
3. Probability of punishment and severity of punishment increased in the U.S. but
declined in England.
III. DRUG LEGALIZATION: COMPETING VIEWS
A. Liberty: An Argument for Legalization
1. Some individuals argue that each responsible individual should have the freedom to
engage in any voluntary transaction as long as it does not impose substantial,
involuntary harm on a third party.
Instructor's Manual  109
a. Children should not have this freedom.
b. Individuals should not be allowed to sell themselves into slavery as this implies
giving up the freedom to make your own decisions.
B. Paternalism: An Argument against Legalization
1. Some individuals argue that through government society can attempt to keep people
from harm even though they are foolish enough to take the risk.
a. This view questions the principle that individuals always act in their own best
interest.
C. Morality: An Argument Against Legalization
1. Some individuals argue that certain actions should be prohibited on moral grounds.
a. This view states that some actions, such as using mind-altering drugs, impact
moral character in such a way that there are subsequent harmful effects on society.
b. This view states that some actions should be prohibited even if the individual
undertaking the action is fully responsible and there is no direct involuntary harm
done to others.
D. The Final Analysis
1. The inconsistent treatment of alcohol and cocaine suggest that our drug laws follow
neither the libertarian, paternalistic, nor morality arguments.
IV. A POSITIVE ANALYSIS OF DRUG POLICY
A. Changes in Supply
1. Drug prohibition will result in a decrease in supply.
a. One factor causing a drop in supply is the potential criminal penalty.
b. A second factor causing the drop in supply is the cartelization of the smuggling of
drugs into the United States.
c. A third factor causing the drop in supply is the risks associated with a lack of
government enforced property rights.
B. Changes in Demand
1. Drug prohibition will result in a decrease in demand.
a. Demand may fall because people think it is improper to engage in illegal activities.
b. Demand may fall because prohibition will increase the nonprice costs of buying
the drug.
c. Demand may fall because of legal penalties associated with possession and use.
d. Demand may fall because of the risk of buying the product in an irregular market.
1. The buyer has little recourse if the product is not what it is supposed to be.
a. The product may be diluted or contaminated.
C. Effects of Changes in Supply and Demand
1. The changes in demand and supply result in an increase in the price of drugs.
2. The changes in demand and supply cause a decrease in the quantity of the drug
exchanged.
D. Does Increased Enforcement Work?
1. The Effects of Policies to Reduce Supply
a. The effects of policies depend upon the responsiveness of demand to price
changes.
110  Chapter 8/Crime and Drugs: A Modern Dilemma
1. For the casual user, demand is relatively responsive.
a. The increase in price caused by reductions in supply will result in a
decrease in both the quantity bought and expenditure.
2. For the dependent user, demand is not as responsive or maybe unresponsive.
a. The increase in price caused by reductions in supply will result in a
decrease in the quantity bought, but an increase in expenditure.
b. It is not clear that any policy can eliminate the supply of drugs.
1. Many view as undesirable U.S. attempts to eliminate supply by interfering in
the agricultural policies of foreign countries.
2. Because of the profitability of producing and distributing illegal drugs, it will
be difficult to eliminate supply.
2. The Effects of Policies to Reduce Demand
a. Increased enforcement raises the risk of buyer-seller relationships, thereby
reducing demand.
b. Demand can be reduced through education about the dangers of drug use and
abuse.
c. While it is true that social conditions can affect an individual's demand for drugs, it
is unlikely that it will be possible to enact policies that will, in the short term,
affect these conditions and thereby significantly affect drug demand.
E. Unintended But Inevitable Consequences of Drug Prohibition
1. Drug prohibition causes a link between drug use and crime.
a. Drug prohibition creates criminals.
1. Many become criminals by simply possessing illegal substances.
b. Drug prohibition results in individuals consuming contaminated products.
1. Prohibition forces consumers to purchase drugs in an illegal market.
2. The government sometimes sprays toxic substances on the raw materials from
which the drugs are made.
c. Prohibition can increase the number of criminals in society.
1. There can be an increase in property crime as dependent users commit crimes
in order to pay for the now more expensive drugs.
2. Prohibition can create opportunities for individuals to earn large incomes by
distributing the drug at both the wholesale level and at the street level as drug
dealers.
3. Prohibition can lead to the corruption of public officials.
F. Unintended But Perhaps Avoidable Consequences of Drug Prohibition
1. Drug laws may have increased the use of cocaine relative to the use of marijuana.
a. Although cocaine is more valuable per gram than marijuana and easier to smuggle,
the penalties for smuggling or wholesaling cocaine are not much greater than the
penalties for smuggling or wholesaling marijuana.
2. Drug laws may have encouraged the development and widespread use of crack
cocaine.
a. Crack cocaine is generally more pure than powder cocaine sold on the streets;
however, the penalties for smuggling or wholesaling are the same for either type of
cocaine.
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3. Increased enforcement may have increased the number of youths involved in retailing
drugs.
4. Increased enforcement has decreased the resources available for the control of nondrug
crime.
a. This decrease in resources decreases the opportunity cost of committing nondrug
crime, thereby leading to an increase in this type of crime.
G. Unintended Consequences of Drug Legalization
1. Legalization may impose costs on society.
a. Legalization may cause increased use by pregnant women resulting in increased
birth defects in children.
b. Legalization may result in increased breakups of families and in serious problems
for families that do not break up.
c. Legalization may result in the increase of deaths of innocent individuals in
automobile accidents.
d. If legalization results in more automobile accidents, automobile insurance rates
will increase.
V. EVALUATION: HAWKS, DOVES, AND OWLS
A. Competing Views in Practice
1. Hawks view the drug problem as one of values.
a. Users and sellers do not care about right and wrong.
b. Users concentrate on short-term benefits and have a lack of concern for others.
c. Drug use is a social evil requiring tough enforcement of prohibition.
2. Doves view the greatest drug problems as arising from prohibition rather than use.
a. Prohibition and the tough enforcement of prohibition can threaten constitutional
guarantees of freedom.
1. Government should not interfere with the informed decisions made by adults.
3. Owls view the drug problem as one of drug abuse, addiction, and associated disease.
a. The drug problem arises from bad social conditions, and should be controlled by
bold, demand-side intervention.
B. Current Policy
1. Resources should be directed so that the equimarginal principle is satisfied.
a. This principle states that the last dollar spent on any activity should give the same
marginal benefit as the last dollar spent on any other activity.
1. This means that the last dollar spent on marijuana enforcement should yield
the same marginal benefit as the last dollar spent on cocaine enforcement.
C. Owlish Criticism
1. Owls argue that too large a portion of the drug enforcement budget is allocated to
punitiveness.
a. Owls argue that reallocating the budget to treatment and education programs
would result in greater benefits to society.
b. Owls also argue that enforcement efforts should be more concentrated on drugs
such as cocaine, which are more dangerous to individual users than on marijuana,
which is less dangerous to individual users.
112  Chapter 8/Crime and Drugs: A Modern Dilemma
2. Despite the owlish criticism, the United States has concentrated on a hawkish drug
enforcement police.
Answers to Review Questions
1. Which of the following would be classified as a public good and why?
a. Clean air.
b. Universities.
c. National defense.
d. Loaf of bread.
In order to classify each of the following as a public or private good, the term public good must
first be defined. A public good is a good possessing two characteristics: a) Once the good is
provided it is difficult to exclude or prevent others from consuming the good, even if they do
not pay for it. b) Consumption of the good by one individual does not reduce the amount
available for others to consume.
Clean air and national defense both satisfy the characteristics of a public good. Once these
goods are made available to one person, it is not possible to prevent another from consuming
the good. Further, it is obvious that one person's consumption does not affect either the
quantity of air or the quantity of national defense available for another to consume.
A loaf of bread would not be classified as a public good. If an individual is unwilling to pay
the bakery for a loaf of bread, the bakery can prevent the individual from consuming it.
Further, if a few slices of a loaf of bread are consumed, the quantity of bread that is available
for others to consume is decreased.
Universities are a good that satisfy one, but not both characteristics of a public good. Such
goods are sometimes referred to as "mixed" goods. It is obvious that it is possible to exclude
individuals from consuming a university education. Every year there are numerous students
who do not attend a university simply because they cannot afford it. However, once the good
is provided, consumption by one individual does not (at least up to a point) affect the quantity
that would be available for another individual to consume. For example, when one individual
listens to a lecture on the economics of drug abuse, this consumption does not affect the
quantity of the lecture available for others to consume.
Although universities are not pure public goods they often receive a great deal of support from
government. This occurs because some people feel that an education offers benefits not only to
the individual who consumes it, but also to society as a whole. It is felt that without
government support, too little of the good would be consumed and society would be made
worse off. A second reason for such support is found in the philosophy that individuals should
not be denied an education simply because they cannot afford to purchase it.
2. Why are public goods generally provided by the government rather than by private
firms?
There are several reasons why government generally provides a public good. First is the fact
that it is costly to exclude individuals from consuming a good that exhibits the characteristics
of a public good. For example, suppose a private firm provides police protection to a certain
Instructor's Manual  113
area of a city. In order to receive payment for the service rendered, the firm would have to
identify all individuals using the service and then bill them for the protection. Further, if the
price paid to the firm is to vary with the quantity of the service consumed, then the firm must
also know the quantity of protection consumed by each individual. Finally, in order to ensure
that payment is received, the firm must be given the ability to prevent those individuals
unwilling to pay from entering the section of the city protected by the firm. While it may be
theoretically possible for a private firm to perform these feats it would be quite costly. Further,
there may be privacy and freedom of movement issues involved. For example, some
individuals may not wish others to know that they entered a particular section of the city.
Further, if individuals wish to enter a particular section of the city should the firm have the
right to impede their freedom of movement simply because they are unwilling to pay for the
protection the firm provides?
The fact that market provision of a public good may result in inefficiency is another factor
accounting for government provision. In order to maximize efficiency, production and
consumption should occur at the point where marginal benefit and marginal cost are equal.
The cost of providing a public good to an additional user is zero. This means that additional
units should be provided free of charge. A firm, however, is in business to make money. In
order to remain open, it must charge some positive price for the good. This price means that
consumption will occur at a point where marginal benefit exceeds marginal cost. Inefficiency
will result, and a loss will be imposed on society.
A final reason for government provision relates to the free rider problem. Because of this
problem, the market will provide a quantity of the public good that is less than the efficient
quantity. Recall that once a public good is provided it is available for all to consume. This
means that people have an incentive to hide their true preferences for the good. As more and
more individuals engage in this preference-hiding behavior, efficient market provision will fail.
For example, suppose a neighborhood consisting of ten homes has had problems with theft.
Residents decide to hire a private security guard to patrol the neighborhood. The cost of the
guard to each person is $50 per month. Now suppose that one neighbor, Gus, decides not to
pay. The other nine residents still desire protection so they each pay an extra amount each
month in order to continue the service. Gus, who no longer pays for the service, still receives
protection. He becomes a free rider. Barbara sees that Gus pays nothing and still receives the
benefits of the guard. She engages in the same behavior. As this behavior spreads throughout
the neighborhood eventually no one is left to pay. This occurs because once the good is
provided all will benefit. Everyone hides his or her preferences for the good hoping someone
else will foot the bill. Thus, an insufficient quantity of the good is provided by the market.
3. Have you ever had a "free rider" problem in a group project? How did you resolve it?
Students' answers will vary, depending on their experiences.
4. Because of high crime rates, crime prevention is often a political issue. Do these high
rates imply that government should undertake increased amounts of crime prevention
activities? Defend your answer.
Crime rates in the United States are high; however, these high rates do not necessarily imply
that the government should undertake more crime prevention and thereby decrease the
probability of being a victim of crime. In order to understand why this is true, consider the
following graph.
114  Chapter 8/Crime and Drugs: A Modern Dilemma
Price per Unit (Dollars)
MSC
C
A
P
1
B
MSB
Q
1
Q
Crime Control per Year
2
In this graph the quantity of crime control is plotted on the horizontal axis and the price per
unit of control is plotted on the vertical axis. MSB is the marginal social benefit of reducing
the probability of being a victim of crime. As society undertakes more crime control, the
probability of being a victim will decrease. As more crime control is undertaken, the marginal
social benefit of reducing the probability by an additional amount falls. For example, it is
likely that people would be willing to pay more to reduce the probability of being a victim
from 80 percent to 79 percent than to reduce the probability of being a victim from 30 percent
to 29 percent.
The MSC is the marginal social cost of reducing the probability of being a victim of crime. As
society undertakes more crime control, marginal social cost will rise. One of the basic ideas of
economics is that in order to produce additional units of one good ever increasing amounts of
other goods must be given up. This increasing opportunity cost means that as more crime
control is produced more and more resources that could have been used to produce other goods
will be used and marginal social cost will rise.
Suppose equilibrium is initially at point A where marginal social benefit and marginal social
cost intersect. At point A, the price of crime control is P1 and the quantity of crime control is
Q1. Suppose that at point A the probability of being a victim is 75 percent. This high
probability does not necessarily mean the government should undertake more crime control.
Suppose the government increases its crime control activities from Q1 to Q2. The benefits of
this increase are given by area Q1ABQ2 under the marginal social benefit curve. The costs of
this increase are given by area Q1ACQ2 under the marginal social cost curve. It is obvious that
the costs associated with increased crime control outweigh the benefits. Only if marginal
social cost and benefit are not equal should government change the amount of crime control it
is undertaking. As has been previously discussed, if marginal social cost and benefit are equal
net benefits will be maximized. In this instance, there is no reason to change production.
Thus, high crime rates should not be used to determine if an increase in crime prevention
should occur. Instead, marginal cost and marginal benefit should be examined.
Instructor's Manual  115
5. Describe the recent crime trends in the United States. Why have U.S. crime rates fallen?
From 1983 to the present, the property crime rate (theft, burglary, and motor vehicle theft) has
fallen steadily in the United States. Violent crime rates (murder, rape, robbery, and aggravated
and simple assault) changed very little from the mid-1980s to the mid-1990s. Since the mid1990s, rates for violent crimes, including homicide, have fallen.
It is likely that increased government expenditures on crime control have played a role in the
reduction of U.S. crime rates. Since 1983, there have been large annual increases in
expenditures (in inflation-adjusted dollars) on crime control.
6. Describe recent crime trends in England and the United States. Why have crime rates
fallen more in the United States than in England?
In general, crime rates are lower in the United States than in England. In addition, crime rates
in the U.S. have fallen since 1981 while crime rates in England have remained stable or even
increased. Specifically, the English assault rate was about even with that of the U.S. in 1981
but more than doubled the U.S. rate in 1995. The English burglary rate was just 40% of the
U.S. rate in 1981, but it was 75% greater than the U.S. rate in 1995. The U.S. murder rate was
8.7 times that of the England in 1981 and was 5.7 times the English rate in 1996. The U.S. rape
rate was 17 times that of England in 1981 and was 3 times the English rate in 1996.
According to James Q. Wilson, increased punishment in the U.S. and decreased punishment in
England is at least part of the explanation for the situation. For example, the risk of days
served for assault and burglary is greater in the U.S. than in England. In addition, the risk has
been increasing in the U.S. and falling in England.
Morgan Reynolds claims the probability of going to prison for committing a serious crime in
1980 was 1.6%. By 1997, the probability had increased to 2.9%. The rate of imprisonment is
5 to 20 times greater in the U.S. than in other industrial economies. Thus, to Reynolds, the
cause of falling crime rates is obvious. Of course, not everyone agrees with Reynolds’
evaluation.
7. Analyze the theory of crime as presented in the box titled, "Police, Guns and Crime." Is
this theory useful for short-term crime control? For long-term crime control? Discuss.
The theory of crime presented in the box is an economic approach to crime control. it argues
that government can control crime by affecting the profitability of crime. By increasing the
probability of getting caught, of getting a conviction, and of receiving a harsh punishment
government can decrease the profitability of crime and thus reduce criminal activity.
Over the long term, this approach to crime is likely to be successful. Statistics indicate that
crime rates in New York City have declined over the past several years as the city has pursued
more aggressive police activity. Likewise, in states where arrest rates are higher, crime rates
tend to be lower.
It should be kept in mind that more aggressive crime control can impose additional costs on
society. These costs can come in the form of increased police brutality or in the form of
allowing citizens to carry concealed weapons. Thus, as with any activity, the marginal cost
must be compared to the marginal benefit of the action in order to determine if it is desirable.
116  Chapter 8/Crime and Drugs: A Modern Dilemma
8. Some people argue that marijuana and other illegal drugs should be legalized because
people should have the freedom to do as they please. They also argue that counterfeiting
compact discs should be illegal. Are they being inconsistent?
People making this argument are not necessarily being inconsistent. The idea that illegal drugs
should be legalized is based on the philosophy that each responsible individual should have the
right to engage in any voluntary transaction as long as it does not impose substantial,
involuntary harm on a third-party. Obviously, counterfeiting compact discs does impose harm
on a third-party (the artists and the companies involved). Thus, arguing for the legalization of
marijuana and other illegal drugs while opposing counterfeiting is not inconsistent.
9. Government restrictions on drug use seem inconsistent with the way alcohol and nicotine
(both drugs themselves) are treated. Why do you believe we see this inconsistency?
There are several reasons that government treats drug use differently than the use of alcohol
and nicotine. First, society's views influence government. In general, society does not
perceive the use of alcohol and nicotine as unacceptable. Although both substances are
technically drugs, society as a whole does not perceive them as such and thus their use is
socially acceptable. This is not true of the use of substances such as marijuana and cocaine.
Society does view these substances as undesirable and their use as detrimental. Often, the laws
passed by government are simply reflections of society's values so it is not surprising to see this
inconsistent treatment.
Another factor leading to this treatment can be related to special interest groups. Both the
tobacco and the alcoholic beverage industry lobby legislators in order to receive favorable
treatment. Because the legislator is able to obtain significant benefits in the form of campaign
contributions and the like, and because the legislator faces few costs in the form of unhappy
voters (due to society's tolerance of these drugs), the inconsistent treatment prevails.
10. How might the legalization of cocaine affect its market price and quantity? Use graphical
analysis to aid in your answer.
The legalization of cocaine is likely to decrease the price of this product and increase quantity.
This occurs because legalization will result in a relatively large increase in the supply of
cocaine and a relatively smaller increase in demand. These effects are represented on the
following graph.
Instructor's Manual  117
Price per Unit (Dollars)
S1
S
2
P1
P
2
D2
D
1
Q1
Q2
Quantity per Week
S1 and D1 represent the demand and supply of drugs under prohibition. The equilibrium price
and quantity are P1 and Q1, respectively. With the repeal of prohibition it is generally assumed
that there would be a relatively large increase in supply shifting S1 to S2. At the same time
demand will increase from D1 to D2. At the new equilibrium, price will have fallen to P2 and
quantity will have risen to Q2. Thus, the effect of legalization will be to lower price and
increase quantity.
11. Why is the cost of drugs likely to increase and the demand for drugs likely to decrease in
the face of prohibition.
The prohibition of drugs will result in both an increase in the cost of drugs (thereby decreasing
supply) and a decrease in the demand for drugs. The increase in cost arises from two sources:
restriction of output and risk. When drugs are prohibited, the method of supply is to have a
cartel (such as the Colombian cocaine cartel) buy the drug in other countries and export it to
foreign customers. Like any cartel, the drug cartel will restrict output in an effort to maximize
profits. This will decrease quantity and drive up price.
Risk also works to increase the cost of the drug. This risk arises from two sources. First, there
is the risk of prosecution associated with supplying an illegal drug. Second, smaller suppliers
run the risk associated with a lack of government-enforced property rights. Because no
property rights are associated with the drug, territories for selling are often won through bloody
street wars. Further, there is no protection if someone wishes to steal the drug from you. Each
deal to sell carries with it the possibility of being shot in order for the buyer to obtain what he
or she wants. Suppliers of drugs must be compensated for the possibility of jail time and the
possibility of bodily injury and death. This raises cost and decreases supply.
Prohibition will also affect demand. Several factors will work to decrease demand. People
may feel that it is improper to consume an illegal good. This will lead to a decrease in the
number of buyers. (In some instances there may be individuals who receive a "thrill" from
minor law violations and thereby increase demand due to prohibition.) Second, because
prohibition increases the price of the drug, people will turn to substitutes such as alcohol. This
will increase the demand for the substitutes and decrease the quantity of drugs demanded.
118  Chapter 8/Crime and Drugs: A Modern Dilemma
Third, the nonprice costs of buying drugs will increase with prohibition (you must develop a
reliable connection, perhaps travel to parts of town you would prefer to avoid, etc.) thereby
decreasing demand. Finally, risk will work to decrease demand. This risk results both from
buying an illegal product (the possibility of jail time) and from buying the product in an
irregular market (the possibility of receiving an impure substance). Thus, prohibition will
work to both increase the cost of supplying drugs and decrease the demand for drugs.
12. "Making drugs illegal results in dealers pushing drugs on nonusers." Is this statement
true or false? Defend your answer.
Some individuals argue that drug pushing leads young people to drugs. Specifically, they
argue that the drug pusher will entice youngsters into drug use by offering drugs to youngsters
either at no charge or at a very reduced prices. Once the individual is hooked, the pusher will
have a regular customer and can increase the price of the good.
While such a strategy may work well in some markets, it is likely to be less beneficial in the
drug market. This market is full of risk and uncertainty. There is no guarantee that any one
individual will become dependent on drugs. Thus, the pusher may lose money by providing
drugs free of charge. Even if the individual does become dependent, it may take a relatively
long period of time to create the dependency. Once the dependency is created the pusher or the
addict may be arrested before the pusher is able to recover his or her losses. Finally, the pusher
may be targeting an individual who is an undercover agent and be risking jail. Because of the
instability of the buyer-seller relationship it seems unlikely that this approach will yield a large
payoff for the pusher; hence, the above statement is likely to be false.
13. What are the pros and cons of drug laws and their increased enforcement?
The effect of increased enforcement will be an increase in price and a reduction in the quantity
of drugs consumed. Because the drug cartel is maximizing profit, an increase in price due to
greater enforcement will reduce its profits. The decreased availability will reduce the number
of young people initiated into drug use.
Despite the desirable effects, there are several problems associated with enforcement.
Enforcement creates criminals. Approximately thirty million Americans use illegal drugs each
year. The law, whose intent is to protect potential users by keeping them away from drugs, has
made criminals out of these individuals. Further, the drugs consumed by these Americans are
unsafe. They are unsafe not only because of their chemical properties, but also because they
are traded in illegal markets where purity is questionable and because our government sprays
the raw materials from which these drugs are made with toxic substances.
In addition to making criminals out of those who possess the drugs, enforcement has also
forced many users to turn to a life of crime in order to support their habit. Enforcement
increases price. This means that one must now spend more money in order to support a drug
habit. One method of getting this money is though criminal acts.
The large profits associated with drugs also create problems. First, dealing opens doors of
opportunity for people to earn large sums of money. For many young people in poor areas, the
seemingly quickest route to the "American dream" is dealing drugs. Second, large profits can
lead to the corruption of public officials. Police officers' salaries are low relative to drug
dealers. Further, these officers see that many citizens do not view drug use as a problem. In
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these circumstances, a large bribe may entice some officers into corrupt behavior. Judges,
prosecutors, guards, and other public officials are subject to this same temptation.
Drug laws may have also encouraged the use of more dangerous drugs like cocaine relative to
other drugs such as marihuana. The relative value of cocaine is much greater than the relative
value of marihuana. Further, because cocaine is less bulky it is easier to smuggle than
marihuana. Under these circumstances, one would expect the supply of cocaine to increase
relative to the supply of marihuana. As a result, the relative price of cocaine will fall. Studies
show that the price of cocaine relative to marijuana has fallen by one-half since 1983. As
relative price falls, one would expect cocaine use to rise relative to marijuana use.
An increase in the purity of a drug may also be the result of increased enforcement. The
penalties for dealing are the same regardless of purity. This means that it becomes more
profitable to deal in the purer, more concentrated product. Whatever the danger of a drug, it
would seem that the more pure and concentrated the product, the relatively greater is the
danger.
A final problem with drug enforcement is the fact that resources are siphoned away from other
types of crime control. We know that scarcity is the basic economic problem. To get more of
one good, ever increasing amounts of other goods and services must be given up. If more drug
enforcement is produced, less of other types of crime control must be produced. Effective
deterrence of any crime requires a high probability of being caught and punished. As more
drug crime control is produced, deterrence for non-drug related crimes will fall. It is entirely
likely that non-drug criminal activities will rise. Thus, the opportunity cost of drug
enforcement may be quite high.
14. People can come to different conclusions about the desirability of Dutch drug policy.
How can people look at the same situation and come to different conclusions?
The Dutch policy emphasizes risk reduction for individual drug users, their neighborhoods, and
the general society. The Dutch have decriminalized the retail sale and use of marijuana for
personal purposes. The government argues that marijuana does not create an unacceptable risk
for users. It also rejects the gateway hypothesis that marijuana leads to hard drug use. The
Dutch feel that it is all but impossible to prevent people from obtaining marijuana. Obtaining
and using it in a controlled environment is better than using it in an illegal, uncontrolled
environment.
The Dutch policy is in obvious contrast to the policy pursued by the U.S., whichin practice
makes no distinction between "hard" and "soft" drugs and views marijuana as a gateway drug.
It is obvious that these two countries view the problem differently. This is likely due to
differences in values and tastes and preferences between the two countries.
15. The chapter argues that present drug laws ensure that drug-related crimes will continue.
On the other hand, legalization would ensure increased drug use and abuse. Are there
any actions that could be undertaken to improve the situation?
Although drug use and how to deal with it seems to put officials between a "rock and a hard
place" there are certain actions that could be undertaken in order to improve matters. One
possible solution is to use the money spent for drug enforcement more efficiently. For
example, current policies make cocaine a more profitable drug than marijuana. By increasing
the penalties for cocaine related crimes, the relative cost of cocaine would rise thereby
120  Chapter 8/Crime and Drugs: A Modern Dilemma
decreasing its profitability. Another means of decreasing the profitability of cocaine is to
redirect resources from the enforcement of marijuana laws to the enforcement of cocaine laws.
If the purity of the drug in question is a problem, the cost of dealing in purer substance forms
could be increased. For example, differential penalties for drug purity could be enforced.
Those caught with purer drugs would suffer much stiffer penalties.
In addition to changing the emphasis of drug laws, resources could be allocated to reduce the
incidental crime associated with drug use. For example, many addicts commit crimes in order
to support their habit. If they are arrested and found guilty it would be possible to make being
drug free a condition for the individual to remain out of jail (either on bond or on parole). If
the individual was unable to pass drug tests he or she would remain in jail. In this instance
those most likely to commit crimes (drug users who are criminals) would remain in jail longer.
Another method (albeit controversial) of decreasing incidental crime is to identify drug addicts
and make the drug available to them at a low or zero cost. For non-addicts stiff penalties
would be in effect. Ideally this would make the drug less expensive to the addict and thereby
decrease his or her temptation to commit a crime in order to finance the habit. One should be
aware that while this policy is theoretically sound it is not without problems. For example, to
be politically acceptable the drug would probably be administered in very low doses. In this
case, the addict would be likely to make illegal purchases of the drug. Also, addicts generally
need frequent doses of the drug in order to satisfy their addiction. The need for frequent doses
means frequent visits to a doctor or clinic. This would increase the expense of the program. It
may be possible to decrease this expense by giving the addict a week's dosage to administer to
him or herself. In this instance, however, there is the possibility that the addict would consume
the entire dose in one day. Also, the addict may be tempted to sell part of his or her allotment
in the illegal drug market. Thus, while there may some controversy associated with different
programs, it would be possible for policy makers to take certain steps to improve the drug
problem.