ABSTRACT
In economic terms, marijuana is an important, yet little understood and controversial commodity. In Australia for example, according to our estimates (to be discussed below), spending on marijuana in the 1990’s is almost twice that on wine. But this commodity, which has been used by something like one-third of the entire adult population, generates no tax revenue. What would happen to the consumption of marijuana if it were legalised? What would happen to alcohol consumption? How much revenue could be generated if marijuana were taxed? What is the price sensitivity of consumption? At a more fundamental level, can the consumption of marijuana be analysed with the conventional utility-maximising calculus? Satisfactory answers to these and related questions are not available in the literature.
