Measuring the Market Size for Cannabis: A New Approach Using Forensic Economics

Matthias Parey,Imran Rasul

doi:10.1111/ecca.12354

Abstract

Quantifying the market size for cannabis is important given vigorous policy debates about how to intervene in this market. We develop a new approach to measuring the size of the cannabis market using forensic economics. The key insight is that cannabis consumption often requires the use of complementary legal inputs: roll‐your‐own tobacco and rolling papers. The forensic approach specifies how legal and illegal inputs are combined in the production of hand‐rolled cigarettes and cannabis joints. These input relationships, along with market adding‐up conditions, can be used to infer the size of the cannabis market. We provide proof‐of‐concept that this approach can be readily calibrated using: (i) point‐of‐sale data on legal inputs of roll‐your‐own tobacco and rolling papers; (ii) input parameter estimates drawn from a wide‐ranging interdisciplinary evidence base. We implement the approach using data from 2008–9. For those years, the forensic estimates for the UK cannabis market are near double those derived from standard demand‐side approaches. We make precise what drives the measurement gap between methods by establishing the adjustments needed to match estimates from alternative approaches. Our analysis develops an agenda on measurement and data collection that allows for credible cost–benefit analysis of policy interventions in illicit drug markets.

Highlights

Since the seminal contribution of Gary Becker (1968), the economics of crime has flourished into a mainstream field for economists
We develop and implement a ‘forensic’ approach in which we specify how legal and illegal inputs are combined in legal markets and illegal markets
Quantifying the market size for cannabis is a vital input for any cost–benefit analysis of policy interventions in this illicit market, which remain the subject of enormous amounts of policy discussion (Miron 2010; Bryan et al 2013)

Summary

INTRODUCTION

Since the seminal contribution of Gary Becker (1968), the economics of crime has flourished into a mainstream field for economists. A body of work has evaluated the causal impact of various policy interventions in the market for illicit substances (Farrelly et al 1999; Dobkin and Nicosia 2009; Galenianos et al 2012; Adda et al 2014), with particular emphasis placed on policy impacts on the total quantity of illicit drugs supplied and demanded, or the equilibrium price of illicit substances Such studies provide vital building blocks for any cost–benefit analysis (CBA) of policy interventions. To bridge the gap between academic research and policy advice requires an effective CBA to be conducted for any given intervention The ingredients for such analyses include understanding the behavioural responses to policies of users, non-users, suppliers, law enforcement bodies and other agents, and measuring the overall impacts on the aggregate quantity of cannabis supplied and demanded. We set out a future research agenda on methods and data collection that aims to bridge the gap faced by social scientists between research into policy interventions in illicit drug markets, CBA of those interventions, and informing ongoing and vigorous policy debates

EXISTING APPROACHES TO MEASURING MARKET SIZE

A FORENSIC APPROACH

PROOF-OF-CONCEPT RESULTS

Findings

DISCUSSION