Monday, 10 December 2007

Legalising ecstasy tablets: policy costings

Tablets taken per weekend - 2 million, deaths per annum around 20 (according to stat's used in a House of Commons debate back in 2000 - scroll down to para. 123).

Cost of a tablet, about £3.

Assuming these could be sold legally (in chemists, one at a time, together with safety instructions) for £2 (a few pence production costs, plus mark-up, plus £1 tax), that'd lead to annual tax receipts of £100 million, deaths would no doubt be halved, and illegal activities would be reduced etc etc.

The value of one life saved in official cost-benefit analyses is around £1 million (scroll down to page 5 of this), so d'you see what we could achieve here? We could save ten lives per year and earn the government £100 million, while taking £300 million gross income away from criminals.

Good, eh?


dearieme said...

How much of Labour's financing comes, through stooges, from Drug Lords?

Snafu said...

Dearieme, so long as they are on the electoral register, who cares!?!

Simon Clark - Formerly The Cynical Libertarian said...

I agree ecstasy should be legalised, but I think we need to look a bit closer at this to figure out what will really happen.

Currently there are at least 104 million ecstasy tablets taken every year in Britain (likely much more as ecstasy is consumed at all times, not just at weekends) and 20 deaths attributed to this in the same period. The price of a tablet is about £3, meaning no less than £312 million is spent on ecstasy each year.

So what would be the effect of legalising it? If we assume, as you have done, that two-thirds of the cost are due to prohibition (increased risk, reduced economies of scale, reduced competition etc) then the free market price is £1. All things being equal, this simple price change would save British consumers £208 million every year.

So, if we go with your valuation of a human life at £1 million, the number of deaths from ecstasy could increase by ten-fold and it we would still be better off under legalisation than prohibition.

All things being equal, a ten-fold increase in ecstasy deaths would require a ten-fold increase in consumption. Just how large (or small) the increase in consumption, due to the fall in price, would be depends on the price elasticity of ecstasy. Narcotics, including non-addictive ones such as ecstasy have generally been shown to have very low price elasticities meaning that, if the price falls by two thirds, demand will increase by a lot less than two thirds so this increase in death is highly unlikely. It will made even less likely, however, because it is quite likely that safety and quality in an open market will be greatly improved. Tablets will be manufactured to high standards, instructions and guidelines will be included and those who do come in to difficulty will likely find medical help much more quickly (as opposed to being dumped outside a hospital by 'friends' afraid of going to jail).

We must also consider shifts in the demand curve. On the one hand, the illegality of ecstasy is likely account for a considerable amount of its appeal and so demand might be reduced, or not increase by as much as the original price elasticity would lead us to believe. On the other hand, the risks of purchase (safety concerns, the police etc) will be lessened which might lead to the opposite effect. Since we lack data, we could assume these effects balance out.

To see whether deaths increase or decrease we must look at how great an impact the improved safety is likely to have, and compare that to the increase in demand. It is possible that deaths might rise overall but then we are making a saving of £208 million plus a lower rate of ecstasy death, plus increased freedom plus savings made through police and prisons etc no longer having to deal with the crime, plus increased productivity from the people who would have been jailed under prohibition being able to go about doing useful things.

We could add a tax on to the price of ecstasy. This would lessen the increase in demand but ultimately lessen the utility gained from that cash i.e. tax £100 million and it might only be worth £75 million. It might, however, have a corrective effect as drug users currently do not pay increased premiums over non users as they might well do in a free market for health care.

I would prefer to abolish the NHS and end drug prohibition without a tax on it, allowing potential drug users to make real choices with the proper incentives, and saving everyone else money.

I should add that there are a number of ways of determining the value of a human life. My preferred method (and a popular one in economic, though not government, circles) is to estimate the projected income of the individual in question over the rest of their likely life. I would also add a premium on top of that, to represent the lost productivity likely to result from grieving family members etc.

dearieme said...

Whenever I see people cost a life at £1 million, I wonder how many people take out life insurance for that sum.

Neil Harding said...

All very good. I agree that all drugs should be legal and taxed. I think usage would remain fairly static, maybe a slight increase in use but the drug will be made safer. Problem with ecstacy is, do we understand the long term effects of its use?

Mark Wadsworth said...

SC, thanks for extra detail.

D, I doubt whether Nulab are actually financed by drug lords, but in a wider sense, there are plenty of people who make a living from the fact that drugs are illegal (extra coppers, social workers, prison officers, A&E staff) most of whom belong to trade unions, who in turn finance Nulab...

Mark Wadsworth said...

Neil, as to long term effects, once it's legalised, we'll be able to ask people who have taken it for years, won't we?

Ian Bennett said...

Simon Clark said: "increased productivity from the people who would have been jailed under prohibition being able to go about doing useful things." It's a minor point, but I suspect that these people are in the business not of "selling ecstasy" but of "selling illegal drugs". Legalise ecstasy and they move onto crack, meth, PCP or whatever the next opportunity happens to be.

Roger Thornhill said...


But if the payments can be seen as collected by the sale of the drugs, the drug lords would therefore be a proxy, and so the payment illegal.

RE: Deaths. IMHO they would, if anything, reduce, as standard or at least comparable doses could be available and packaging can be there to advise on safe usage.

Mark Wadsworth said...

Ian Bennett, I think SC meant the USERS of illegal drugs, who will waste less time in Court, prison etc and less time chasing after drug dealers. The can pop down to corner shop for smokes and snacks in one outing, the evening's sorted.

Sure, drug dealers will move on to other stuff but there is no reason to assume that, once ecstasy and cannabis are legally available, people will stop using them and start taking other the other stuff you mention (I shall have to look up what meth and PCP are before commenting further).

Simon Clark - Formerly The Cynical Libertarian said...

Thanks, Mark, that is what I meant :)