Economics Research Seminar | Weatherhead School at Case Western Reserve University

Economics Research Seminar

Displacement in the Criminal Labor Market: Evidence from Drug Legalizations

Abstract - It is widely hypothesized that legalization disrupts illicit markets and displaces illegal suppliers, but the consequences for those who are displaced remain poorly understood. In this paper, I use comprehensive administrative data on the universe of o?enders in three states that legalized marijuana to study the e?ect of the policy change on the subsequent criminal and labor activity of convicted dealers. I ?nd that marijuana legalization increased the 9-month recidivism rate of marijuana offenders by 5 percentage points relative to a baseline rate of 11 percent. The results are not explained by changes in enforcement. Rather, the increased recidivism is driven by substitution to the tra?cking of other drugs, which is consistent with a Becker-style model where individuals develop human capital speci?c to the drug industry. Using the NLSY97, I show evidence of legalization-induced dis-placement even amongst non-convicted dealers. To learn about potential mechanisms behind these results, I use transaction-level data to estimate the e?ect of legalization on average prices and price dispersion. I provide suggestive evidence that both the price level and residual variance declined fol-lowing legalization, consistent with legalization eroding rents earned in the illicit marijuana market. Overall, the results in this paper suggest that an unintended consequence of selective legalization is a re-allocation of drug criminals to other illicit activity.

Please join the Economics Department for a research seminar.  This event is open to all Case Western Reserve University faculty, Ph.D. students, economic majors and minors, and those interested in economics research.

Contact Information:
Teresa Kabat 

Tuesday, Feb. 5, 2019 from 4 p.m. to 5:30 p.m.
Case Western Reserve University, Room 258
10900 Euclid Avenue
Cleveland, OH 44106-7235
United States
Speaker(s): Heyu Xiong, Northwestern Universtiy, Ph.D. Candidate
Sponsored by: Economics Department
Displacement in the Criminal Labor Market


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