Do consumers substitute opium for hashish? An economic analysis of simultaneous cannabinoid and opiate consumption in a legal regime

Abstract

Aim: To analyze interrelationships in the consumption of opiates and cannabinoids in a legal regime and, specifically, whether consumers of opiates and cannabinoids treat them as substitutes for each other.

Method: Econometric dynamic panel data models for opium consumption are estimated using the generalized method of moments (GMM). A unique dataset containing information about opiate (opium) consumption from the Punjab province of British India for the years 1907-1918 is analyzed (n=252) as a function of its own price, the prices of two forms of cannabis (the leaf (bhang), and the resin (charas, or hashish)), and wage income. Cross-price elasticities are examined to reveal substitution or complementarity between opium and cannabis.

Results: Opium is a substitute for charas (or hashish), with a cross price elasticity (βˆ3) of 0.14 (p<0.05), but not for bhang (cannabis leaves; cross price elasticity=0.00, p>0.10). Opium consumption (βˆ1=0.47 to 0.49, p<0.01) shows properties of habit persistence consistent with addiction. The consumption of opium is slightly responsive (inelastic) to changes in its own price (βˆ2=-0.34 to -0.35, p<0.05 to 0.01) and consumer wages (βˆ1=0.15, p<0.05).

Conclusion: Opium and hashish, a form of cannabis, are substitutes. In addition, opium consumption displays properties of habit persistence and slight price and wage income responsiveness (inelasticity) consistent with an addictive substance.

Keywords: Bhang; Cannabis; Hashish; Opium; Price responsiveness; Substitution effect.