Cost-benefit analysis of the ban on drugs in netherlands - Essay Example

? COST-BENEFIT ANALYSIS OF THE BAN ON DRUGS IN NETHERLANDS The Netherlands is one of the sin the world where cannabis sativa and marijuana drugs are under great political and legal controversy. Various economic policies have been discussed to come up with the most appropriate measure against the effects of such drugs on the entire society. This country is torn between legalization of the supply of such drugs versus absolute prohibition. It is worth noting that these two proposals have different socio-economic effects, but one must outdo the other either way. To find out this, some analysis needs to be done and data need to be sourced to generate a hypothesis, prove it and formulate recommendations. The case under study will consider the use of cost-benefit analysis as one of the economic approach to testing the cost that the society will incur if they opt for either of the mentioned policies (Cleveland, 2008, p. 563). On the other side of the coin, the benefit that each of the two options will accrue will also be measured, and the further systematic test procedure qualifies one to be adopted. Economic policies across the world have been influenced by both political and social factors. It is worth noting that the general welfare of people is given priority. In any economic idea in the society, critical analysis needs to be carried out to ascertain its benefit or loss to the people. Various concepts are applicable in this respect but their uses also depend on the nature of economic variables under question (Chris & Wilhite 2004, pp. 108-9). Cost-benefit analysis is an economic concept that has a wide use. In project appraisal it is one of the recommended methods of testing the viability of a project. It is a double faced in-depth analysis of the various cost that would be incurred in making a given investment policy and comparing with the benefit that would be obtained from successfully undertaking the project under question. Its application is not only limited to economic projects but also covers the political decisions that are pegged on economic results. An example includes decisions by the government to introduce a given statute that will regulate a given behavior of a specific group of people. In this regard, the Netherlands is faced with a policy dilemma of whether to legalize the aforementioned drugs or to put a ban. Some of the challenges that it faces are the issue of a high influx of tourists who pose a threat to the law regulating the consumption of these drugs (Miron & Zwiebel, 2005, pp.67-8). It is, therefore, important to draw a cost-benefit model that would check which way is the best to go. Social cost of prohibition tends to be higher as it triggers various socials ills in the society, which translates to retrogressive economic direction of the country. On the other side, legalization comes with some costs of formulating and harmonizing the legal policy across the various groups of people that include citizens and foreigners without creating any negative impact on the diplomatic relations with other states and the tourism sector (Miron, 2001, p. 851). In estimating the costs, there is a breakdown of various tangible and intangible costs, and this is a characteristic of the legal proposals that the Dutch authorities are trying to put across. Benefits in terms of economic policy also have a wide use and sum up all the positive contributions of a given idea which includes reduction of negative factors. In applying the concept of cost-benefit analysis in the case of this country, we are simply assuming that the cost has a negative sign while the benefits have positive signs. When the two are summed up, a positive sign is deemed acceptable; the negative result, on the other hand, is considered a burden while zero may mean that other factors are taken into consideration. In relation to the case of imposing a ban on the drugs, a lot of social costs are eminent (Chris & Wilhite, 2004, p. 114; Cleveland, 2008, p. 577). One of them is the possibility of an increased number of illegal suppliers, which means that the drugs end up being bought by wrong consumers and the mode of supplying is spilt over to the other members of the society in various ways. Besides, the black market operators are likely to escape the tax net and, therefore, deny the government revenue that is very important in funding various administrative activities. Illegal market also erases the level ground for competition by the other traders and, in this case, the licensed coffee shops that offer the same. All such costs form part of negative externalities to the society and hence net social cost to the citizens. The answer must include numerate examples of the projected loss and gain for the government. As the ban is set to enforce on the 1st of January 2013, one is expected to provide hypothetical revenue loss and gain. However, any projection must be substantiated by concise references. Enforcement of the ban is set to take effect from 1st of January 2013, and the effects are to be presented in numerical terms. The loss to the government is likely to take various forms that, when calculated, will probably outweigh the gain. The government’s aim of imposing a ban is to restrict purchase from only licensed coffee shops which are suited for adherence of laws and regulations on who should buy. Statistical data show that the ban is likely to cost the country a lot of revenue loss through smuggling of such drugs by unsuspecting tourists. Tax collected from the sale of such drugs accounts for about four percent of the government revenue, and this is significant if evaded by the illegal suppliers (Plancherel et al., 2005, p. 139). Such illegal sellers affect the competitive market structure for this drug, and this creates disparities in pricing making the cost of ascertaining the price index go up substantially. There is also the information cost incurred by various government agencies struggling to establish perfect competitive trade modalities. The ban equally has some benefit in the sense that there is a marginal decrease in the number of consumers, thereby saving the economy of reduced loss of time for working (Frey, 2007, p. 582). Let us take an example of the following hypothetical annual loss to the government by imposing the ban, according to the information on money laundering and financial crimes in reference to the 2011 International Narcotics Control Strategy Report (INCSR), Volume 2, Money Laundering and Financial Crimes. The following are some of the estimates on the above discussed issue: Evaded tax = $ 250M. Cost of medical cover for the underage suffering from respiratory infection from smoking = $3.7M. Cost of treating people affected by smokers = $ 4.67M. Total loss to the government = $ 258.37M. The marginal gain can be estimated to be the reduced cost of medical expenses on underage consumers. This can hypothetically be estimated at $ 15.67M.Data obtained from Bedrijfschap Horeca en Catering in 2010. To calculate the net gain or loss, sum the total loss ($ 258.37M) against the total gain of $15.67M, and the result will be $ 242.7M), which is a net loss. It is also important to note that banning drug tourism will greatly reduce the tourism income by 11.2 Euros. The hypothetical data presented above simply gives the aggregate state of the societal welfare when the country imposes a ban. It is important to note that the mode of calculating the costs must cover even the time preference of money. This means that discounting is done to ensure that the effects of inflation and interest rate are also factored in (Van Ours & Williams, 2007, p. 182). Some negative externalities are calculated with regard to the people affected. For instance, where smoking leads to infection of non-smokers with the effect of seeking medical cost, the government will estimate the cost from that end. It was found out that the number of people likely to buy from outside are many compared to legitimate consumers, and this tax evaded by such illicit traders can be estimated to establish the actual amount of revenue loss (Farrelly, 2003, p. 100). The illegal suppliers have a network of middlemen implying a chain of various age groups that include young people. In this case, the young contraband supply recruits cause nuisance to the society by posing a threat to the fellow students or young people who also happen to be targeted as customers. Cost-benefit analysis compares the probability of the project recovering the cost of acquisition (Wilkins & Casswell, 2002, p. 13). It should also be known to the government that the increased cost of taxation policy formulated, and the amount of time commitment adds up to be the cost of the policy to the authorities. The hypothetical data drawn above raises the issue of the validity and reliability of the cost-benefit analysis. Considering the view on legalization with increasing competition, it is a matter of parliamentary debate to consider it (Wouters & Dirk, 2009, p. 14). In weighing the economic impacts of the ban, there will be increased loss of revenue to the government, and this needs the immediate intervention of the government. References Chris, P & Wilhite, A 2004, Illegal markets and the social costs of rent-seeking, Public Choice, no. 79, pp. 105-115. Cleveland, M 2008, Downsizing the drug war and considering ‘legalization: an economic perspective, in J Fish (ed.), How to legalize drugs, Jason Aronson, Inc., Northvale, NJ, pp. 547-577. Farrelly, MC 2003, Price and enforcement effects on cocaine and marijuana demand, Economic Inquiry, vol., 41, no. 1, pp. 98-115. Frey, BS 2007, Drugs, economics, and policy, Economic Policy, vol. 12, no. 25, pp. 387-398. Miron, JA & Zwiebel, J 2005, The Economic case against drug prohibition, Journal of Economics and Health, vol. 24, no. 6, pp.67-8. Miron, JA 2001, The economics of drug prohibition and drug legalization, Social Research, vol.68, no. 3, pp. 835-855. Plancherel, B et al. 2005, Adolescents beliefs about marijuana use: a comparison of regular uses, past users and never/occasional users, Journal of Drug Education, vol. 35, no. 2, pp. 131-146. Van Ours, JC & Williams, J 2007, Cannabis prices and dynamics of cannabis use, Journal of Economic Perspectives, vol. 9, no. 4, pp. 175-92. Wilkins, C & Casswell, S 2002, The cannabis black market and the case for legalisation of cannabis in New Zealand, Social Policy Journal of New Zealand, vol. 18, pp. 1-13. Wouters, M & Korf, DJ 2009, Access to licensed cannabis supply and the separation of markets policy in the Netherlands, Journal of Drug Issues 0022-0426/09/03 627-652, pp.1-26. Read More