The damage done by cocaine, cannabis and heroine in poor countries, from Mexico to Guinea-Bissau and Afghanistan, is a sad story. Gangsters get so powerful that states fail. Fighting the supply side ends up in bloodshed. Legalization would help but rich countries are afraid (unjustifiably) of more public health problems and opposed by stubborn conservatives who just don't get it...
Here is a new idea. Markets fail when moral hazard is too much of a problem. So to make the illegal drug market fail, just inject moral hazard in it. And how do you do that? By increasing the share of impure drug. Indeed, the seller can covertly dilute (“cut”) the product, and this dilution is largely unobservable to buyers until after they consume. This asymmetric information problem may be risen up to a point of market collapse and a victory in the war on drugs!
So how can policymakers increase the share of impure drug? They could induce sellers to dilute more through a policy of reducing the sentences of sellers who “cheat” and sell low-purity drugs. "While the strategy of shortening sentences for “high diluters” looks a little like decriminalization, it is the kind of decriminalization that conservatives might find more acceptable, because it would undermine the drug trade." As conservatives need to understand, "the dichotomy between the war on drugs and decriminalization may indeed be a false one".
If this works, it would make studying economics relevant.