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by Michael Grossman Frank Chaloupka Charles C. Brown National
Bureau of Economic Research, Inc. This paper
applies the rational addiction model, which emphasizes the interdependency
of past, current, and future consumption of an addictive good, to the
demand for cocaine by young adults in the Monitoring the Future Panel.
The price of cocaine is added to this survey from the System to Retrieve
Information from Drug Evidence (STRIDE) maintained by the Drug Enforcement
Administration of the U.S. Department of Justice. Results suggest that
annual participation and frequency of use given participation are negatively
related to the price of cocaine. In addition current participation is
positively related to past and future participation, and current frequency
of use given participation is positively related to past and future frequency
of use. The long-run price elasticity of total consumption (participation
multiplied by frequency given participation) of -1.18 is substantial.
A permanent 10 percent reduction in price due, for example, to the legalization
of cocaine would cause the number of cocaine users to grow by slightly
more than 8 percent and would increase the frequency of use among users
by a little more than 3 percent. Surely, both proponents and opponents
of drug legalization should take account of this increase in consumption
in debating their respective positions.
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