An interesting post from last week over at Marginal Revolution about a forthcoming paper in the Journal of Political Economy on how elasticity affects the market for illegal goods.
In an important new study, world-renowned economists–including a Nobel Prize winner and a MacArthur “genius”–argue that when demand for a good is inelastic, the cost of making consumption illegal exceeds the gain. […] The authors demonstrate how the elasticity of demand is crucial to understanding the effects of punishment on suppliers. […]
“This analysisáhelps us understand why the War on Drugs has been so difficult to wináwhy efforts to reduce the supply of drugs leads to violence and greater power to street gangs and drug cartels,” conclude the authors. “The answer lies in the basic theory of enforcement developed in this paper.”
A good discussion in comments at Marginal Revolution, with most of the best comments coming from daksya.
Update: Apparently, the year recently became 2007, so this January 2006 post is actually a year old, not a week. Still, the points are valid, just more aged and wise…