Tariffs, Quotas, Games, and Drugs
By Arnold Kling
Gary Becker makes the case against the drug war.
After totaling all spending, a study by Kevin Murphy, Steve Cicala, and myself estimates that the war on drugs is costing the US one way or another well over $100 billion per year.
…Our study suggests that legalization of drugs combined with an excise tax on consumption would be a far cheaper and more effective way to reduce drug use.
One of the differences between a tariff and a quota is that a tariff creates revenue for the government, while a quota creates rents for sellers. Similarly, Becker argues that a tax on drugs would create revenue for the government, while the drug war creates profits for successful criminals.
In his response, Richard Posner agrees, but notes that
one of the strongest cases for prohibiting drugs is the use of steroids by athletes. The reason is the arms-race character of such use, or in economic terms the existence of an externality. Ordinarily if a person uses a drug that injures his health, he bears the full costs, or at least most of the costs, of the injury. But if an athlete uses steroids to increase his competitive performance, he imposes a cost on his competitors, which in turn may induce them to follow suit…
Thus, Posner adds game theory to Becker’s international trade theory.
For Discussion. Last year, the FDA approved the use of human growth hormone for treating otherwise normal children in the lowest percentiles for height. What would game theory say about that policy?