Citation

Clements KW, Lan Y, Zhao X. Empir. Econ. 2010; 39(1): 203-239.

Copyright

(Copyright © 2010, Holtzbrinck Springer Nature Publishing Group)

DOI

10.1007/s00181-009-0302-x

PMID

unavailable

Abstract

This paper analyses consumption patterns of marijuana, tobacco and alcohol. To deal with imperfect marijuana data, we exploit the interdependencies in the consumption of the three drugs identified in prior research, and introduce a Monte Carlo simulation procedure to formally account for the inherent uncertainty in marijuana-related data and parameters. To illustrate the application of the framework, we use Australian data to simulate the impact on consumption of the legalisation of marijuana, which is then subject to taxation. Under the base-case scenario and when the marijuana risk premium is 200%, taxing marijuana at the same rate as tobacco is estimated to yield additional revenue of about 24% of the pre-existing proceeds from taxation of tobacco and alcohol. The role of uncertainty surrounding marijuana is highlighted by providing the entire probability distributions of all endogenous variables in a consistent multivariate framework.

Language: en