Ruhr Economic Papers

Ruhr Economic Papers #774

Light Cannabis and Organized Crime – Evidence from (Unintended) Liberalization in Italy

by Vincenzo Carrieri, Leonardo Madio and Francesco Principe

RWI, 10/2018, 19 S./p., 8 Euro, ISBN 978-3-86788-902-5 DOI: 10.4419/86788902

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Abstract

The effect of marijuana liberalization on crime is object of a large interest by social
scientists and policy-makers. However, due to the scarcity of relevant data, the
displacement effect of liberalization on the supply of illegal drugs remained substantially
unexplored. This paper exploits the unintended liberalization of cannabis light (C-light,
i.e. with low THC) occurred in Italy in December 2016 by means of a legislative gap, to
assess its effect in a quasi-experimental setting. Although the liberalization interested
all the Italian territory, the intensity of liberalization in the short-run varied according to
the pre-liberalization market configuration of grow-shops, i.e. shops selling industrial
canapa-related products that have been able to first place the canapa flowers (C-light)
on the new market. We exploit this variation in a Differences-in-Differences design
using a unique dataset on monthly confiscations of drugs at province level (NUTS-3
level) over the period 2016-2018 matched with data on the geographical location of
shops and socio-demographic variables. We find that the legalization of C-light led to
a reduction of 12% of confiscation of marijuana per each pre-existing grow-shop and a
significant reduction of other canapa-derived drugs (plants of cannabis and hashish).
Back-to-envelope calculations suggest that forgone revenues for criminal organizations
amount to at least 160-200 million Euros per year. These results support the argument
that, even in a short period of time and with an imperfect substitute, the organized
crime’s supply of illegal drugs is displaced by the entry of official and legal retailers.

JEL-Classification: K23, K42, H75, I18

Keywords: Cannabis; marijuana light; crime; illegal market; diff-in-diff

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