State drug control spending and illicit drug participation

DHAVAL DAVE [*] The purpose of this article is to estimate the effect of state criminal justice expenditures and state public health expenditures on deterring illicit drug use. The empirics are based on a demand-and-supply model of drug markets. The effect of a given expenditure on criminal justice or public health programs is dependent on the magnitude of the resulting shifts in the two functions and the demand price elasticity. A reduced form of the demand-and-supply model is also estimated. The data employed come from the 1990 and 1991 National Household Surveys on Drug Abuse (NHSDA). Data on state and local spending for drug-related criminal justice and drug-related public health programs were merged with the NHSDA. The main findings from the regression results are that drug control spending reduces drug use. However, the results suggest that for marijuana users, the marginal cost of drug control exceeds the social benefits of drug control. This may not be the case for users of other illicit drugs. Spending for drug enf orcement by police and drug treatment is found most effective in deterring drug use. However, spending for correctional facilities is never significant, which suggests that a more efficient method of reducing drug use might be to reduce correctional facilities spending and increase spending on treatment. (JEL I1) I. INTRODUCTION Illicit drugs impose significant costs on society and individual users. These costs include increased crime, health problems, and employment problems. Because of these considerable costs, both the federal government and state governments have made drug control an important budget priority. According to the Office of National Drug Control Policy (ONDCP, 1999), federal spending on drug control increased from $1.5 billion in fiscal 1981 to $17.8 billion in fiscal 1999. This is an annual growth rate of over 14%. Spending on criminal justice, interdiction, and international programs has remained at about 60% to 70% of total drug control spending. State government drug control expenditures are also for both criminal justice programs and public health programs. Criminal justice programs include the enforcement of laws pertaining to the use and sale of illicit drugs through expenditures on police, courts, prosecution, and corrections. Public health programs include expenditures on drug education and treatment. In ad dition, the government must provide for the defense of individuals who are unable to provide their own. Although the available data on state and local level spending are limited to 1990 and 1991, these expenditures have probably also grown over time. In 1991, state and local governments spent $15.9 billion on drug control (ONDCP, 1993). Spending on criminal justice was about 80% of total state and local spending on drug control. The purpose of this article is to estimate the effects of state-level expenditures on criminal justice and public health in reducing drug use. To analyze the effects of criminal justice and public health spending, economists (i.e., Lee [1993]; Wagstaff [1989]) have employed a supply-and-demand model. This model assumes a demand function that is downward sloping with respect to price and a supply function that is horizontal or upward sloping with respect to price. Criminal justice spending directed at drug dealers may increase the cost of doing business, which would raise the price of illicit drugs and reduce drug use. Criminal justice spending directed at users may shift the demand curve to the left, which would reduce drug use and drug prices. Public health programs inform potential buyers of the health risks associated with drug use and may also shift demand to the left, reducing drug prices and drug use. The effect of a given expenditure on criminal justice or public health is dependent on the magnitude of the resulting shifts in the two functions and the supply and demand price elasticities. Although the supply-and-demand model of drug markets is an important theoretical framework, there has been very little quantification of this model until recently. …