Long term implications of drug policy shifts: Anticipating and non-anticipating consumers

We consider a semi-rational addiction model in which the user has perfect foresight over all things within the user’s control, but not necessarily with respect to exogenous parameter shocks, e.g., those stemming from changes in national policy. We show that addictive substances are more likely to have state-dependent solution trajectories, and that in turn can create path dependence at the macro-policy level; in particular, legalization may be an irreversible experiment. Also, in this model, shifting from a nuanced policy that differentiates between high and low intensity users, to a tougher one where the government makes life hard for every user reduces initiation considerably. However, it also may have perverse effects. In particular, we show that making the policy tougher in this way could drive some people from a “happy” stable saddle point equilibrium with moderate consumption into increasing rather than reducing their consumption and addiction stock. So implementing zero tolerance policies may increase rather than reduce aggregate drug use, depending on the population’s distribution of parameter values and initial consumption stocks. Further, we consider the impact of announcing a policy change.