Chapter 8Crime 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.What a public good is and why the existence of public goods leads to a role for government.
2.Why the establishment of a system of property rights is important.
3.That property rights provision is a public good.
4.Why the efficient level of crime is not zero.
5.The normative arguments for and against drug legalization.
6.The consequences of drug prohibition.
7.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 issuebe it abortion, drugs, gambling, or whatever--almost certainly will be topical for the foreseeable future.
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.
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.
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.
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.
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.
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 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?