Sinnovation: How Markets Can Solve Public Health Problems


In Chapter 4 of The Adam Smith Institute's Sinnovation report, which looks at ‘liberal harm reduction', Dr Henry Fisher looks at legal highs - the drugs that prove that the prohibition of entire markets leads to unintended consequences.


4. Legal Highs

The drugs that prove the prohibition of entire markets inevitably leads to unintended consequences

In 2013, Blackburn council made an interesting foray into uncharted drug policy territory, and in doing so, predicted what lay ahead for the rest of the UK. The council had received multiple complaints concerning the city’s head shops selling legal highs, and decided to take action. Through the use of Trading Standards orders, the council successfully prevented all outlets from selling legal highs in the town centre.

In creating a vacuum on the supply side of the legal highs market in Blackburn, while demand still remained, the council created the perfect environment for the market to be exploited by illegal street dealers.[1] While the business practices of the closed legal high shops could have been improved, for example with intelligent regulations or incentives to encourage responsible use of their products, they were nonetheless leagues above those of the street dealers. Street dealers’ customers have no recourse to legal action when products turn out to be dangerous. Worse still, street dealing relationships are unable to use any of the methods available in legal markets that ameliorate “information asymmetries”—situations where seller and buyer have different information about the quality or safety of a product. Used car salesmen can have their wares independently checked, or build an impressive forecourt to convince buyers they’ll stick around. By contrast, street dealers have short relationships with clients that make it hard for honesty norms to develop and sustain.


Read the full report here.