Department of Economics. University of Melbourne. Parkville Victoria 3052 Australia
ABSTRACT
This paper estimates the price responsiveness of cannabis, alcohol and cigarette use. Individual level data from four waves of the National Drug Strategy Household Survey is merged with previously unavailable state level data on cannabis prices and ABS alcohol and tobacco price indices. In addition to own price effects, we estimate cross price effects and the impact of differing legal regimes for cannabis on the use of these three drugs. Establishing the nature of the interdependencies between cannabis, alcohol and cigarettes is important in the development of drug policy so that a policy directed at one drug does not unintentionally affect the demand for other drugs. Comparisons between South Australia and the other Australian states allows us to examine the effect of reducing legal sanctions against cannabis use. We fine that participation in the use of all three drugs is responsive to own prices and that decriminalisation of cannabis leads to higher use via a lower cannabis price. Cannabis is found to be an economic substitute for the legal drugs.
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