Abstract
If alcohol has substitutes, changes in its relative price can encourage the production and consumption of other illicit and harmful drugs. This paper considers if county-level bans on the sale of alcohol in the state of Mississippi encourage the production and consumption of crystal methamphetamine. We estimate the parameters of a drug production function in which the inputs are the density of people and firms, underscoring the importance of learning and knowledge spillovers to production and consumption. Poisson and Negative Binomial parameter estimates reveal that county-level bans on hard liquor sales; but not on beer and wine, increase the number of crystal methamphetamine labs. In the absence of such laws, there would be approximately 308 fewer crystal methamphetamine labs in the state of Mississippi. Our findings suggest that in Mississippi, which is the least healthiest state in the nation, county-level bans on hard liquor sales are not welfare improving as they encourage substitution for a drug that is potentially more harmful to individual health than alcohol.