organizations are also present in Peru, where they have gained parliamentary representation and demanded in Congress to legalize coca cultivation (Thoumi, 2005).

# **3. Why Prohibit Drugs?  The costs of drug consumption**

The costs of prohibition borne by producer countries are largely a product of policies made in consuming countries and justified on the basis of costs and benefits within consuming countries. Since welfare calculations in consuming countries are most important for policy making in those countries, it is only if those calculations, or perceptions of those calculations, change that we can expect significant policy changes. It is therefore important to review the basis for those calculations, and to this issue we turn now.

A necessary condition for the prohibition of a specific good to be economically rational is the existence of negative externalities associated with its consumption or production that outweigh the consumer and producer surpluses associated with the good. Given the high costs of prohibition, even in consuming countries, one might expect the externalities associated with drug consumption in consuming countries to be particularly high and prohibition to be particularly effective in suppressing consumption relative to alternative strategies. However, as discussed next, the evidence on whether the costs of consumption externalities are higher than the costs of prohibition is debatable; the evidence on whether consumption externalities prevented by prohibition outweigh the costs of prohibition is even weaker.

There are few estimates of the tangible externalities imposed by drug users on society and none of the intangible externalities (the welfare costs of drug use for those morally opposed to drug use). The existing estimates adopt extremely divergent methodologies and are often aimed at calculating costs other than pure externalities. For example, the White House estimates of the economic costs of drug abuse yield total costs of $181 billion (1.7 percent of GDP) in 2002 (Executive Office of the President 2004). Of these, however, productivity losses account for 71.2 percent, due in part to drug users own lost productivity (most of which are private to the drug user and not an externality) but mostly due to the incarceration of 660,000 drug offenders (whose lost productivity does not result from drug use, per se, but from drug criminalization). A study undertaken for the British Home Office (Godfrey, et al. 2002) reached similar conclusions about the total cost of drug use in the UK (approximately ₤15 billion in 2000, or 1.6 percent of GDP). However, productivity losses play little or no role in this estimate; by far its largest component is the victim costs of crime committed by problem drug users, amounting to ₤12.3 billion.

Victim costs of crime are an authentic externality, to the extent that they are driven by drug use. However, methodologies for estimating victim costs of crime by drug users and separating crimes that were due to drug use and crimes that would have been committed by drug users regardless of their drug use are again entirely divergent. The White House estimates also take into account crime, for example. Most of these costs are not the social costs of drug abuse, but rather relate to the budgetary costs of arresting and incarcerating individuals for drug offenses, which, together with the productivity losses of incarceration, account for most of the $107.8 billion of total drug abuse costs it attributes to crime. The White House report concludes that the victim costs of property crimes committed _because_ of drug use are only on the order of $200 million. This constitutes the report’s estimate of the cost of crimes committed by addicted 9