Would liberalization lead to epidemic cocaine consumption?

Abstract

This article uses cross-country data to estimate the potential effect of drastic reductions in the price of cocaine on the share of the population that consumes this drug. In order to identify movements along the cocaine consumption/demand function, this article instruments for cocaine prices with variables that affect the supply of cocaine. Liberalization of drug policies would produce an increase in the prevalence of cocaine consumption. However, the quantitative evidence presented here suggests that, even if substantial, this increase would not amount to epidemic cocaine use.

Keywords:

• drug policy liberalization
• drug prohibition
• cocaine consumption

JEL Classification:

• I18
• K42

Acknowledgements

We are grateful to Ximena Del Carpio, Phil Keefer, Peter Reuter and Rodrigo Soares for valuable insights.

The findings and conclusions expressed in this article are entirely those of the authors. They do not necessarily represent the views of the World Bank, its directors or the governments they represent.

Notes

¹ The scarcity of data in the time-series dimension prevents us from using panel data techniques.

² In robustness exercises (available upon request), we consider other potential determinants of cocaine consumption prevalence, such as the share of young population, the rate of alcohol consumption and, most importantly, the degree of cocaine retail purity. They were not significantly related to cocaine consumption prevalence, and their inclusion did not affect the coefficient on cocaine price to any important extent. Given these facts and their limited data availability (which in the last two cases reduced the sample size considerably), we decided to exclude them from the basic specification.

³ Following up on robustness exercises (available on request), the results are qualitatively similar if the main producers of cocaine – Bolivia, Colombia and Peru – are excluded from the sample.

⁴ For comparison purposes, note that the world mean and SD of cocaine consumption prevalence are 0.7% and 0.64% of the population, respectively.