Marijuana on Main Street? Estimating Demand in Markets with Limited Access

Marijuana is the most common illicit drug with vocal advocates for legalization. Among other things, legalization would increase access and remove the stigma of illegality. Our model disentangles the role of access from preferences and shows that selection into access is not random. We find that traditional demand estimates are biased resulting in incorrect policy conclusions. If marijuana were legalized, those under 30 would see modest increases in use of 28 percent, while on average use would increase by 48percent (to 19.4 percent). Tax policies are effective at curbing use, where Australia could raise AU$1 billion (and the United States US$12 billion).