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RWP 23-10, September 2023

We analyze the effects of legalizing recreational marijuana on state economic and social outcomes (2000–20) using difference-in-differences estimation robust to staggered timing and heterogeneity of treatment. We find moderate economic gains accompanied by some social costs. Post-legalization, average state income grew by 3 percent, house prices by 6 percent, and population by 2 percent. However, substance use disorders, chronic homelessness, and arrests increased by 17, 35, and 13 percent, respectively. Although some of our estimates are noisy, our findings suggest that the economic benefits of legalization are broadly distributed, while the social costs may be more concentrated among individuals who use marijuana heavily. States that legalized early experienced similar social costs but larger economic gains, implying a potential first-mover advantage.

JEL Classifications: H71, I18, R52

Article Citation

  • Brown, Jason P., Elior D. Cohen, and Alison Felix. 2023. “Economic Benefits and Social Costs of Legalizing Recreational Marijuana.” Federal Reserve Bank of Kansas City, Research Working Paper no. 23-10, September. Available at External Linkhttps://doi.org/10.18651/RWP2023-10

Authors

Jason P. Brown

Vice President and Economist

Jason Brown is a Vice President and Economist in the Economic Research Department of the Federal Reserve Bank of Kansas City. In this role, he oversees the regional research and …

Elior Cohen

Economist

Elior Cohen is an economist at the Economic Research Department of the Federal Reserve Bank of Kansas City. His research interests lie at the intersection of labor and public eco…

Alison Felix

Senior Policy Advisor

Alison Felix is Senior Policy Advisor at the Federal Reserve Bank of Kansas City. In this role, she is responsible for briefing the Kansas City Fed’s president—a member of the Fe…