Monday, April 9, 2012

For a more efficient front line

New Zealand's headed for a pretty austere budget; the government's looking for front-line efficiencies:
The Government's "general strategy" remained trying to move money on to front line services, but English signalled pressure would go on for savings there too.
"Where the front line is inefficient, of course, it will have to be sorted out," he said. 
"We're not offering any guarantees ... Just by way of example, if you can give the police mobile technology, then you could get more front line hours with the same number of police - so it's more policing, safer public and we cut costs."
If we're really looking for front-line police efficiency, allow police to stop worrying about marijuana and instead focus on violent crime. Reallocate resources currently devoted to big grow op busts and put them into areas where social costs are real and substantial.

The Law Commission reported that cannabis enforcement cost the police about $116 million in 2005/06; it would be surprising if current figures were lower. Back of the envelope, but if that were shifted over into violent crime, we might expect some pretty serious savings. Treasury estimated a 1% decrease in violent crime saves $25 million in social costs; if the elasticity of crime with respect to police expenditures follows American estimates, which I'd take as a lower bound given that they're further out on a likely concave production function, we'd reduce violent crime by about 11% and social costs of violent crime by about $250 million.

Even better, legalize marijuana but regulate it similarly to alcohol and tobacco with restrictions on age of purchase and on permissible sales venues. Set an excise tax to keep the selling price to consumers about where it is now if demand-reduction is government policy. It's not simple to figure out what that tax should be because it's not obvious what production efficiencies could be achieved in a legalized production environment. But back-of-the-envelope numbers suggest excise revenues a bit over $150m (with a very wide confidence interval; I'd be very surprised if it came in at less than $100 million or at more than $300 million). If production costs in a legal environment were $30-$50 per ounce, and if we assume distribution costs roughly on par with production costs, then a legal market would deliver product to consumers at about $100 per ounce; if weed currently sells at about $300 per ounce, then excise and GST* could total about $200 per ounce. A 2001 estimate put the black market in marijuana at around $190 million in 2001; if marijuana follows the CPI, that's about 830,000 ounces. At $200/oz in tax, that's about $165m.

Recall that drug use in Portugal has gone down, not up, since they abandoned prohibition.** In that case, tax revenues are less than I'm here ballparking.

* Normally we'd ignore the GST revenues collected as they'd just be a shift in spending from other GST-subject goods. But moving to a legal market would bring in net new GST revenues. I discussed some related issues here.

** They have not gone to full legalization; read the Cato summary.


  1. With drugs, it's not just the cost of police, but Customs also. A large part of the Customs front line could be done away with altogether potentially.

    1. Yes. I'd missed that. Would there really be that much effect at the margin though? Isn't there a lot of overlap between biosecurity and drug checks?

    2. I doubt there is a lot of importing of cannabis going on, kiwis seem to be pretty good at growing it here. So not sure that legalising cannabis would save that much customs resource. As always, I'm happy to be proven wrong. A more liberal stance on other drugs, however, would free up a great deal of customs time and effort.

    3. Lats, I meant other drugs, not cannabis. And Eric, biosecurity and Customs are pretty much completely separate (though that may change in the future).

    4. Fair enough. It did occur to me after posting that comment that it is likely that cannabis seeds probably are being imported, although I have no idea how prevalent this might be. I imagine that there would probably be a market for stronger strains grown in a controlled environment, much as there are folk who prefer to buy specialist cheeses, wines and other connoisseur products.

    5. @dragonfly - I didn't know; thanks! I'd assumed that whatever they did checking for dirt and produce also wound up checking for drugs - that the "search for contraband" procedure was one big thing rather than split. Guess I was wrong.

      @Lats: I'm not sure on stronger - recall that prohibition tends to increase the concentration of the active ingredient.

    6. @Eric - perhaps my use of stronger was ill-advised. However I doubt the heritage of your average bush weed is known particularly well, and may be a result of generations of random cross-breeding. But a cannoisseur (see what I did there?) may well prefer that their product be of known parentage and attributes. Of course I may be completely misrepresenting the growers; they may be ardent and passionate enthusiasts who demand the best quality control for their product. I rather suspect, however, that this is less likely under prohibition; I'd expect to see this sort of specialist market evolve and develop in a more open market.


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