What Bans Don't Stop

EMMANUELLE Auriol is a professor of economics at the Toulouse School of Economics, one of Europe’s leading research institutions and the home of Nobel laureate Jean Tirole. Her research covers the regulation of industries with little competition, development economics, and, increasingly, behavioural economics and the economics of religion. Her work on drugs and migration starts from one idea: a black market cannot be banned out of existence, but it can be priced out.

The Confluence: Could you give us a brief overview of your research interests, and why you got into the field?

Dr. Auriol: My work is organised around two main branches. The first is non-competitive industries [markets dominated by one or a few firms, such as water, rail, or electricity networks] and regulation, something I’ve studied since my PhD: what public policy can and should do about markets that aren’t competitive, including public-private partnerships and a bit of antitrust [competition law that stops firms from abusing market power] and procurement [how governments buy goods and services].

The other branch is more focused on developing countries, and because of that I became more and more interested in behavioural economics, applying it both to internal labour markets, things like social status concerns and intrinsic motivation [working because the job itself matters to you, not only for the pay] among workers, and, since it’s very salient when you work in developing countries, the economics of religion.

The Confluence: One of your papers, Weeding Out the Dealers, looks at whether legalising cannabis can push criminal suppliers out of business. Why doesn’t making something legal get rid of its black market automatically?

Dr. Auriol: Take cannabis: it’s the most consumed illegal psychotropic substance on earth, but banning it doesn’t kill demand. If that latent demand [the demand that remains whether or not the product is legal] is large, as it is for alcohol and cannabis alike, prohibition just pushes consumption into the black market. That’s exactly what happened with alcohol in the US: organised crime grew enormously under prohibition [the nationwide ban on alcohol from 1920 to 1933], and some of the mafia networks that took root then are still operating today.

One idea not informed by economics would be to legalise and simply price the new legal product at the black market price. That won’t eradicate dealers, because the price of an illegal drug is usually far above its marginal cost [what it costs to produce one more unit]; cannabis is an agricultural product that costs very little to produce, so if legal cannabis appears at a lower price, dealers just cut their own price to keep their market share.

To actually clean the market of dealers you need an eviction price: one low enough that it pushes dealers down to their marginal cost, which is higher than the legal one because they carry the costs of hiding production and of losing stock to police seizures.

The Confluence: There seems to be a trade-off: price legal cannabis low enough to undercut dealers and you risk a surge in consumption, but price it too high and consumers stick with illegal suppliers. How can governments manage that?

Dr. Auriol: People often don’t realise there’s no real opposition between legalisation and repression; they go hand in hand. To maintain a legal price that’s relatively high without pushing people back to dealers, you need to keep the dealers’ own costs high too, mainly through police pressure: destroying stock, making cultivation harder. Canada [which legalised recreational cannabis in 2018] is a cautionary example: at first there wasn’t enough legal cannabis, and its quality was worse, so consumers stuck with illegal dealers.

Quality is a powerful tool here. Legal cannabis can be certified organic, with controlled concentration, things consumers value and dealers can’t easily match, which lets you sustain a higher price while still pulling demand away from the black market. When we look at the data on places that have legalised, consumption does increase, but mostly among people who were already consumers, not large waves of new users. And legalisation has a real upside too: regulated shops can be held legally accountable for not selling to underage buyers, which helps protect them.

The Confluence: You’ve studied a lot of different things, from cannabis markets to migration to religion. Is there a common thread connecting your interests, or a common mistake governments make about how people behave?

Dr. Auriol: There are different types of economist. Some like the intellectual challenge of solving difficult modelling or statistical problems. I’m not like that. For me, economics is an applied science: it matters because we all depend on an economic system, and my goal is to understand this complex system where billions of people interact, and to try to act on it to make it a better place.

That’s why I’m drawn to situations where laissez-faire [leaving markets to run themselves without government intervention] is obviously inefficient, or where public policy is bad, because that’s where I believe our understanding can actually help increase efficiency or fairness.

The Confluence: Your work on temporary foreign work permits applies a similar idea to people smuggling: offer a legal route that can compete with the illegal one. What would that system actually look like for an economic migrant?

Dr. Auriol: Economic migration includes both workers and students, and among worker migrants there are unskilled and skilled migrants, who need very different policies. My paper focuses on unskilled migration, which is very restricted in advanced economies even though it’s badly needed; these migrants work in hospitality, agriculture, security, mining, the hard, physically demanding jobs.

There’s demand for that labour locally and a supply of it in poorer countries, but essentially no legal mechanism to match them, so people cross at the risk of their lives and pay smugglers, and once they arrive they often end up in underpaid, illegal jobs.

What we recommend is a temporary, not permanent, visa. That addresses one of voters’ biggest concerns, family reunification [the right of migrants to bring their families to join them], which is politically unpopular in many advanced economies. These visas should come with a wage floor [a guaranteed minimum wage for visa holders], not just a cost to obtain, so they don’t undercut native workers, which also makes the policy more acceptable politically.

France already has a good example: temporary migrants from Morocco who come each summer to pick clementines in Corsica, then return home. It’s called circular migration, and it benefits both countries without the humanitarian costs of an illegal Mediterranean crossing, and without trapping migrants who, once they’ve paid a smuggler and arrived, often can’t afford to go home even if there’s no work.

The Confluence: If a reader remembers just one thing from this conversation, what should it be?

Dr. Auriol: Economics is very often counter-intuitive. Good intentions can lead to very bad outcomes when policy ignores economic mechanisms and how firms and individuals, legal or illegal, actually react to them. Poor policy design can backfire badly, and can even threaten democracy, which is exactly why studying economics matters.