The design of public interventions to reduce externalities and to ensure that individuals do not take actions that they may subsequently regret is fraught with difficulty. Efficient regulations would take into account the fact that externalities created by drug use vary widely across individuals and drug type, as do the propensity to addiction and awareness of its costs. The wide variation in frequency of consumption across users and across drugs is one obvious indicator of this heterogeneity. It is difficult to design restrictions on drug use that take these variations into account, since information on which individuals are most likely to impose externalities or more vulnerable to unwitting addiction is difficult or impossible to get. Social opprobrium itself is a major constraint on a modulated approach to reducing the costs of drug use. In many societies, the use of any narcotic drug is simply rejected by large segments of the population.

Given the high costs of prohibition and criminalization, it is particularly important to ask whether policies of interdiction and penalization of drug trade and consumption achieve their stated objectives of reducing consumption and/or production. Overall, there is little evidence that they do. In the U.S. drug market, although the intensity of prohibition enforcement has grown over time, prices have been stable or declining. In fact, Mejía and Posada (2005) observe that the price of cocaine in the US and Europe has declined to its lowest levels in history, while purity seems to have stayed roughly unchanged. Declining prices may be a sign of success for prohibition aimed at reducing demand (punishing or informing users) but may also be a sign of failure for prohibition aimed at reducing supply (punishing traffickers). The evidence points to the latter: Estimated production has decreased slightly, consumption has changed little, and drug-related hospitalizations have actually increased (Grossman, 2004).

Despite increased international efforts dedicated to suppressing drug supplies, production has decreased only modestly. Opium cultivation in Afghanistan, which is responsible for 80% of world production, reached one of its highest points historically in 2004 and has almost doubled since then. And prices, after skyrocketing during the Taliban regime, dropped substantially (Byrd and Ward, 2004, and Thoumi, 2005). In the case of coca, aggregate cultivation in Bolivia, Colombia, and Peru in 2004 was similar to the level observed in the end of the 1990s, despite the fact that reported eradication is supposed to have risen substantially in all three countries (which are together responsible for virtually all the world production).

Chart 3 shows that heroin and cocaine prices in the US have declined monotonically since the early 1980s, while marijuana prices fluctuated without a clear trend until the mid 1990s, and then also started a consistent decline. Chart 4 shows that marijuana and cocaine use among high school seniors in the US declined between the 1970s and the early 1990s, but since then either remained stable or increased slightly. Although drug use seems to have dropped significantly from the mid-1970s to the mid-1980s, figures reported by the White House confirm that, from 1988 to 2001, self-reported use of drugs was essentially unchanged.<sup>5</sup> For example, 7.7 percent of respondents reported having used drugs in the past 30 days in a 1988 survey; 7.1 percent reported the same in a (non-comparable) 2001 survey.

These data indicate that the proportion of users is likely to have been fairly constant. Harm per dose may have increased, however, consistent with the earlier discussion about the public health consequences of prohibition. Chart 5 indicates that drug-related admissions experienced a sustained increase between 1978 and 2002, and more than doubled – for

> 5 See http://www.whitehousedrugpolicy.gov/publications/factsht/druguse/index.html.

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