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Arnold Kling  
PERMANENT LINK | MARCH 21, 2005

Tariffs, Quotas, Games, and Drugs

Arnold Kling
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What is a Modern Recession?... Health Care Waste...

Gary Becker makes the case against the drug war.


After totaling all spending, a study by Kevin Murphy, Steve Cicala, and myself estimates that the war on drugs is costing the US one way or another well over $100 billion per year.

...Our study suggests that legalization of drugs combined with an excise tax on consumption would be a far cheaper and more effective way to reduce drug use.


One of the differences between a tariff and a quota is that a tariff creates revenue for the government, while a quota creates rents for sellers. Similarly, Becker argues that a tax on drugs would create revenue for the government, while the drug war creates profits for successful criminals.

In his response, Richard Posner agrees, but notes that


one of the strongest cases for prohibiting drugs is the use of steroids by athletes. The reason is the arms-race character of such use, or in economic terms the existence of an externality. Ordinarily if a person uses a drug that injures his health, he bears the full costs, or at least most of the costs, of the injury. But if an athlete uses steroids to increase his competitive performance, he imposes a cost on his competitors, which in turn may induce them to follow suit...

Thus, Posner adds game theory to Becker's international trade theory.

For Discussion. Last year, the FDA approved the use of human growth hormone for treating otherwise normal children in the lowest percentiles for height. What would game theory say about that policy?


Comments and Sharing


CATEGORIES: Game Theory , International Trade


   

COMMENTS (3 to date)
Don Boudreaux writes:

As one commentor on Posner's entry notes, it's not clear that there's no social benefit from the steroid-fueled arms race among baseball players to beef up. Fans enjoy seeing towering home runs.

But more importantly, I'm surprised that Posner believes that steroid use by athletes offers an especially strong case for drug prohibition. Given that Major League baseball, the NFL, the NBA, the NCAA, and other sports leagues each have incentives to determine the optimal amount of steroid use and to monitor this use and enforce limits if necessary, the case for government doing so seems to be especially weak.

Posted March 21, 2005 11:59 AM
Bob writes:

Let's see - if the shortest children receive HGH and grow, there will be a new batch of shortest children who will now receive HGH, creating a new batch of "shortest" children, etc. Where did someone get the idea that you can eliminate the lowest percentiles of a distribution?

Sounds sort of like CEO pay policy....

Posted March 21, 2005 12:14 PM
Lawrance George Lux writes:

Change in height status is Generational, and height standards would not make for Game theory.

The Becker argument lacks power to restrict use of Drugs. Tweaking his argument would:

Legalize Drug use, but refuse all but U.S. citizens from importing it. They would be the lackeys of foreign cartels, but their name would be on the Import ticket, and they would have to transport themselves. They would have to register for a Price to Transport, identify for a Price their area of Distribution and list for a Price all distribution into new areas(thinking State Counties and Municipal cities), identify all Employees and pay all Withholding taxes, then pay the Excise tax. lgl

Posted March 21, 2005 12:43 PM
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