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Government Ghanja Glut

October 16, 2004

When Guliani ran for mayor of New York in 1993 he mocked that the OTB, a government agency, was "the only bookie joint in New York that loses money." The current crisis hitting the Dutch health ministry indicates that its agency is "the only ‘joint’ joint in Netherlands that loses money."

The governmental marijuana is less potent and more expensive than what can be had on the street. The number of economic factors at play here is quite interesting. To be fair the government is not providing the same good as the private dealers. It is technically providing a different good since its product is legal, is sold in a different venue, requires a prescription, and has fixed quality requirements.The government also has a smaller market because it is restricted to provide for medical use only. 

Various factors could cause governmental marijuana to be cheaper. Being legal should remove the cost of law enforcement evasion. However, in this case the black market is openly tolerated so it may not have much effect. The government could also be directly subsidizing producers with tax funds. Perhaps because of the bad incentives that might arise that was not the choice made. Instead medical insurance has a part to play in this. Governmental marijuana is covered by insurance, which causes the third party payer problem to arise. This should tend to raise prices. However since there is a glut it’s not obvious this is an important factor either.

Perhaps, as usual, the government just isn’t providing the product the consumer wants or needs. After all it can always bail itself out with taxpayer money if the consumer fails to cooperate.

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