The existing forms of drug liberalization have been hotly debated over the past years in several countries, especially in the United Kingdom. However, the public debate is couched mostly in speculation, due to the lack of empirical evidence on these matters.

In this study we recognize the importance of drug demand indicators but we focus our analysis on the supply side. To the best of our knowledge this is the first study that investigates the role of the drug decriminalization process in illicit drug prices.

With this analysis we contribute to the drug policy debate by empirically assessing the impact of the Portuguese drug decriminalization (which occurred on 1 July 2001) on drug prices. We find that (retail) prices of cocaine and opiates did not decrease following the drug decriminalization. Therefore, drug decriminalization seems to have caused no harm through lower illicit drugs prices, which would lead to higher drug usage and dependence. This evidence contrasts with the commonly held belief that drug decriminalization would necessarily lead to a dramatic increase in usage rates.

According to these results, softer drug law enforcement regarding illicit drug consumers does not inevitably lead to lower prices. In the 1980s the United States started to pursue a harsher drug law enforcement by increasing sanctions associated with drug-related crime. During this period consumption did not decrease and contrary to expectations street prices fell (Basov, Jacobson, & Miron, 2001). The US stringent criminalization policies are a response to increased supply and aims at reducing consumption. The combination of the two may explain why prices did not increase and instead decreased in result of the rising enforcement. Kleiman (2009) write that ‘‘Perhaps it is time to confess that, under the current U.S. conditions, drug law enforcement has a very limited capacity to raise the prices and reduce the availability of mass-market drugs, and thereby to reduce the extent of drug abuse’’. Our results are in line with this failure of the ‘‘war on drugs’’ to link higher prices with increased toughness. In the Portuguese case, decreased toughness on the demand side did not contribute to lower prices but if anything to higher prices than the ones that would have been observed in the absence of the drug decriminalization policy.

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