The Economics of Drug Policy

Abstract

If psychoactive substances were bought and sold like most other goods, drug addiction would still remain a social and medical problem. Drugs would interest economists as examples of demerit goods which can injure the health of users and impose costs on others. Health economists would have a role in helping to evaluate alternative therapies but general economic considerations would not loom large in discussions of drug issues. Economic (and political) matters have become central to drug issues and to the appraisal of public policy, mainly because the use and exchange of psychoactive substances is illegal. This paper reviews drug policy from an economic point of view. Most of the analysis is uncontroversial but no attempt is made to disguise the opinion that a large part of ‘the evil of drug abuse’ is the predictable consequence of legal prohibition.