Jon Caulkins from Carnegie Mellon University gave a provocative talk at INFORMS about the policy implications of Proposition 19 in California, which would have decriminalized marijuana had it passed. Prior to the election last week, about one third of voters opposed Proposition 19, one third supported Proposition 19, and one third were undecided. The undecided voters could swing the election either way. The swing voters seemed to respond to economic impacts of Proposition 19. Since California is just about broke, Proposition 19 becomes very appealing if it reduces incarceration costs, increases tax revenues, and reduces drug cartel violence in Mexico (as its supporters have promised).
Jon Caulkins worked with RAND to unravel the implications of passing Proposition 1, and he presented his findings at INFORMS. This talk was extremely well-attended, which wasn’t all that surprising. I came to see an interesting talk about public policy, and I was a little curious about why others came. (Statistic: non-drug dependent college graduates represent 7% of the marijuana market).
Caulkins reported six key findings in the RAND report (called “Altered State”) . There was nothing half baked in his analysis:
1. The pre-tax price of marijuana would fall at least 80%. This conclusion was obtained by creating would-be business plans for growing marijuana. However, the (post tax) price that consumers would pay would be significant.
2. Given the high tax on marijuana, tax evasion could be a huge problem, which would lower the amount of tax revenue that California could collect.
3. Marijuana consumption would go up, but no one knows how much. An increased consumption could have several causes. First, many have studied the price elasticity of marijuana, but they are all based on the current, high prices. Second, marijuana could lead to product diversification that we see with many other products. For example, it could be bundled with, say, brownies and beer.
4. The criminal justice expenditures on marijuana are exaggerated.
5. Tax revenues would be lower than the $1.4B CA Board of Equalization estimate as a result of tax evasion (see #2), lower prices leading to lower taxes (see #1), and a greater potency from legal growers leading to consumers needing less marijuana for their fix.
6. The reduction of violence in Mexico and dollars flowing to Mexico is largely biased. California represents about 1/7 of the marijuana consumption, and while it would make some improvements, there would still be a huge demand for (illegal) marijuana in the other 49 states.
Points 3 – 5 would result in fewer economic benefits for California. With fewer economic benefits, there was in an immediate and significant decline in voter support after the release of the RAND report (I can’t find a picture of the polling data as a function of time, but if you find it, please post it in the comments). Caulkins great OR work likely affected the outcome of the election, which is pretty exciting.
I wish there was more good OR to help me make better decisions in the voting booth. Have you ever changed how you were going to vote based on math?
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