Drug Prices Do Not Always Decrease After Decriminalization

The challenges of illegal drug use in the United States and around the world have been addressed in many ways over the past decades, from harsh sentencing guidelines to anti-trafficking activities. Decriminalization, or the legalization of drugs, is an approach that has gained popularity, despite the argument that removing the threat of legal action would lower drug costs and encourage drug usage and dependence.

However, as researchers have found, drug prices may respond to more complex models of supply and demand than other markets. Consequently, it is valuable to examine the effects of decriminalization in countries other than the United States. In July 2001, Portugal decriminalized the “use, possession, and acquisition” of all drugs within a 10-day supply. Sónia Félix and Pedro Portugal at the Universidade Nova de Lisboa compare panel data from 16 European countries and from Portugal and find that cocaine and opiate prices did not decrease in the years after the law went into effect.

As is the case for many types of policy analysis, a simple comparison of data before and after a new law or policy does not account for other factors that could have made an impact. Félix and Portugal use panel data of drug prices from the United Nations World Drug Report (2009) and data from 16 countries (15 European Union countries plus Norway) between 1990 and 2010. The authors then create a counterfactual estimate of what prices may have been in Portugal without the decriminalization policy using data from those 16 countries, allowing them to generate a difference-in-differences estimate of the change in drug prices. The resulting coefficient, when considering a country-specific time trend, is positive but not statistically significant, meaning there was no meaningful change in prices that could be attributed to Portugal’s drug policy.

The authors also use the synthetic control method to create two “synthetic Portugal” models and estimate opiate and cocaine prices without decriminalization. This approach allows the authors to create a comparison group based on countries with social and economic factors that most closely resemble Portugal and to consider other differences that cannot be observed.

Controlling for variables such as alcohol consumption, the size of the youth population, and GDP per capita, the authors find that the price of opiates in Portugal before 2000 most closely resembled that in France, Germany, Italy, and the Netherlands. The price of cocaine most closely resembled that of Belgium and the Netherlands (the study uses 2000 as the treatment date because authorities began to implement the new policy before the law’s official start date of July 1, 2001). The authors do not find any systematic differences between the synthetic models and Portugal’s actual data, providing strength for the difference-in-differences estimates.

While the reliability of drug pricing data across countries is hard to confirm and is based on data from both surveys and annual reports, the authors note that data collection methods within the comparison countries likely did not change in substantial ways. Even if the comparison data is accepted as accurate, there could be reasons beyond decriminalization that explain why drug prices didn’t change.

As part of its National Strategy for the Fight Against Drugs, Portugal increased efforts to fight drug trafficking, which could have impacted the supply of available drugs. Although their analysis focuses on drug prices and not drug use, the authors cite other research that points to lower drug use in Portugal post-decriminalization compared to other European countries, especially among at-risk populations. In particular, the number of drug users with HIV and AIDS was lower after decriminalization, and more resources were provided for treatment and prevention programs. Overall, the evidence from Portugal suggests that decriminalization should not be dismissed solely based on fears of increasing demand for illicit drugs.

Article source: Félix, Sónia, and Pedro Portugal. “Drug decriminalization and the price of illicit drugs.” International Journal of Drug Policy 39 (2017): 121-129.

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