The Market for Illegal Goods

The Case of Drugs

Bibliographic Data

ID10172201
AuthorsGary S Becker (University of Chicago), Kevin Murphy (0000-0001-8982-3641, National Bureau of Economic Research), Kevin M Murphy, Michael Grossman (0000-0001-9863-4308, National Bureau of Economic Research)
Year2006
Volume114
Issue1
Pages38-60
Publication date2006-01-30
Peer ReviewedYes
Open AccessNo
TypeARTICLE
VenueJournal of Political Economy (JOURNAL)
Journal identifiersISSN: 0022-3808 • E-ISSN: 1537-534X
PublisherUniversity of Chicago Press (PUBLISHER • US)
DOI10.1086/498918
OpenAlexW2057062690
LanguageEN
Citations received42
References cited8

This paper considers the costs of reducing consumption of a good by making its production illegal and punishing apprehended illegal producers. We use illegal drugs as a prominent example. We show that the more inelastic either demand for or supply of a good is, the greater the increase in social cost from further reducing its production by greater enforcement efforts. So optimal public expenditures on apprehension and conviction of illegal suppliers depend not only on the difference between the social and private values from consumption but also on these elasticities. When demand and supply are not too elastic, it does not pay to enforce any prohibition unless the social value is negative. We also show that a monetary tax could cause a greater reduction in output and increase in price than optimal enforcement against the same good would if it were illegal, even though some producers may go underground to avoid a monetary tax. When enforcement is costly, excise taxes and quantity restrictions are not equivalent

Apprehension · Business · Consumption (sociology · Conviction · Economic surplus · Economics · Enforcement · Excise · Market economy · Microeconomics · Price elasticity of demand · Production (economics · Public economics · Social cost · Value (mathematics · Crime, Illicit Activities, and Governance · Law · Law, Economics, and Judicial Systems · Taxation and Compliance Studies