Game-theory problem set guaranteed to get students’ undivided attention

Imagine the problem of state-level marijuana legalization as a non-zero-sum, sequential-play game involving the DEA and the pot advocates.

Game theory can be terribly dry. Below is an exercise suitable for an introductory undergraduate course.



Marijuana advocates in Washington State have developed an elaborate set of regulations designed to allow adults to get marijuana without legal risk and generate revenue to the state while at the same time limiting exports to other states, sales to minors, and tax evasion. The regulations require that each location where marijuana is to be produced, processed, or sold be individually licensed by the state.

That system might work reasonably well unless the federal government decided to interfere. Still, at best, there would still be more cannabis use than under prohibition.

If the federal government – specifically the DEA – did decide to interfere, the whole system could easily be shut down. Since all of the activity Washington State plans to regulate is against the federal law, DEA is strongly motivated to do that.

Completely unregulated marijuana dealing would be much worse, from the viewpoint of the advocates: more access for juveniles and no revenue for the state. It would also be worse from the perspective of DEA.

Now imagine this as a non-zero-sum, sequential-move game, where the marijuana advocates move first.

What is the advocates’ best play? And how should DEA respond?

Would DEA prefer to be able to make a commitment before the advocates move?

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact:

20 thoughts on “Game-theory problem set guaranteed to get students’ undivided attention”

  1. I’d say the advocates’ best move is to go completely unregulated, and bar state and local police from giving the DEA any cooperation. This avoids creating choke points the DEA can concentrate on, and helpfully identifying where they are, and thus maximizes the true goal of the advocates, which is not reducing pot use, or generating revenue, but reducing the number of pot users hurt by the government.

    The “best” move for the DEA, given that they lack resources to achieve a high probability that any given user will be caught, is to raise the punishment for those few who ARE caught to absurdly high levels, extra-judicially and very publicly. Midnight raids on anyone who can be identified as using pot, with deliberate destruction of property, and designed to maximize the likelihood of people getting killed. (Essentially the BATF’s strategy in the run up to Waco.) Enforcement would be concentrated on anybody who exercised their First amendment rights to defend legalization, particularly leaders of the movement.

    In short, the best strategy for the legalizers is to simply legalize, and leave people the heck alone. The best strategy for the DEA is to go full police state.

    1. I disagree. The advocates should move to create a regulated system with easily-seized chokepoints for federal or state arrest of those state-legal growers who get involved in black-market selling to minors or out of state, and the state system should include vigorous prosecution of those violators.

      This creates a version of the ultimatum game: feds can accept this offer by the advocates, or they can get Brett’s unregulated system that includes a lack of state cooperation in enforcement against pot.

      DEA would then be in a tough position. They can decide whether to create chaos in order to get a reversal of the law in Washington (very difficult) or to live with it and risk legalization spreading.

    2. In short, the best strategy for the legalizers is to simply legalize, and leave people the heck alone.

      As a would-be legalizer, the last thing I would want is unscrupulous merchants selling “medicated lollipops” to 10-year-olds. Age requirements, labeling requirements, and certification that product is unadulterated are fine with me (despite my libertarianism).

      Cannabis is enjoyable and not terribly harmful when used in moderation by (most) adults.

      But we can’t pretend we’re selling celery here. As the great hero Richard Lee would say, “Legal like Budweiser, not legal like tomatoes.”

  2. If legal pot is the game, the first play I would make would be to set up shop in Colorado, where the law is much more realistic and much more business- and consumer- friendly. The WA game is hopelessly rigged against everyone involved in the legal market. The best move there is not to play.

    1. That’s a good question. The “win” condition for legalizers is people being able to smoke pot in peace, and a reduction in general crime levels due to the collateral crime associated with a black market going away.

      I guess the “win” condition for the DEA is people not smoking pot.

      1. “I guess the ‘win’ condition for the DEA is people not smoking pot.”

        Are we talking some idealized game-theory DEA that acts according to their stated mission, or real-life DEA that acts according to self-interest? If the latter, then people not smoking pot would go very strongly against DEA interests, as it would likely result in a threatening of budget and hence livelihood. The win situation for the DEA is to sabotage any successful well-run legalization scheme and prop up and encourage large criminal enterprises that can then serve as fodder for arrest statistics as well as parading the evils of drugs.

        1. Given the optimal strategy I proposed for the DEA up thread, what do you suppose my opinion of the DEA is?

          I think their actual goals, in practice, are likely half-way between institutional self-perpetuation, as you suggest, and a desire to effectively enforce the laws they’ve been given to enforce.

          Problem is, neither goal is really consistent with the long term welfare of Americans…

        2. In law school, Pete’s comment is known as “fighting the hypothetical.” It’s considered bad form. Mark has hypothesized that the DEA has an interest in regulating marijuana use. This hypothesis is necessary for his game-theoretical exercise, and must be respected if we respect the exercise. (As Lowell points out, the DEA’s incentives provided by Mark are badly underspecified.)

          I also think that Pete (and Brett) are correct. The DEA’s incentives are largely driven by internal bureaucratic imperatives and an enforcement–rather than harm reduction–mission. Welfare or liberty maximization play no role in the DEA’s utility function.

  3. Excellent illustrations of how essential it is in gaming out a situation to try to understand what it is the players are aiming it.

  4. Now imagine this as a non-zero-sum, sequential-move game, where the marijuana advocates move first.

    Advocates: Ask for regulations ASAP. Scrupulously follow state law. Use these written edicts as a shield against any future DEA actions. Snitch out any MJ retailrs who disobey the law.

    DEA: Focus limited resources on scofflaws. Don’t arrest law-abiding providers. However, do not announce this policy explicitly. Allow it to become standard practice and eventually it will become universally understood.

      1. You’re right that I’m probably being insufficiently cynical. But the question, as asked, had marijuana advocates as the first-mover.

        US public opinion doesn’t seem to have moved toward the legalization of cocaine and other hard drugs. In other words, the electorate isn’t anti-Prohibition; they’re pro-marijuana.

        The DEA has to preserve the idea in public opinion that something–anything–they’re doing is valuable. They’ll have a much easier time of doing that if they go after meth labs, heroin dealers, Grateful Dead fans.

        If they’re smart, they’ll ease off the pot-heads and let (many of) them make fools of themselves.

        1. I agree with Brett that Chipotle is insufficiently cynical.

          The DEA does not have to preserve the idea in public opinion that they are valuable. They are the status quo, so the political burden on them is a lot easier. They merely have to accuse their opponents of–what was that wonderful old Comintern language?–being “objective supporters” of meth labs, heroin dealers, and Grateful Dead fans.

          For what it is worth, I think that whatever regulatory scheme the advocates use should be impervious to a Federal subpoena and disclosures by local authorities who may rely on federal asset forfeitures for funding. The latter is well within the powers of the state. I’m not enough of a Constitutional lawyer to know if the Printz case makes the former possible.

          1. I don’t understand what you think a state can do to make anything impervious to federal subpoena. Give licenses to pseudonyms? Maintain no records at all?

            People seem to lose the ability to understand the Supremacy Clause when talking about marijuana. Maybe is we use an analogy: Suppose that although wolves are protected in Wyoming under the federal Endangered Species Act, the Wyoming Fish & Game department issues tags for wolf hunting. Why would these a record of these tags be immune to a federal subpoena?

          2. I mean, obviously under Printz, the feds can’t compel state authorities to go around collecting data on state regulated marijuana operations. But the records that state authorities are already gathering? Directly relevant to every single tax evasion prosecution the feds institute.

          3. But it’s a solution to a non-problem anyway. It’s not a secret who’s selling marijuana in ‘legalization’ states. They advertise. Billboards, radio, what have you. They’ll be keeping their own records, for tax purposes, including receipts from suppliers (because, as the Tax Court says, even if they can’t deduct expenses, they can subtract cost of goods sold).

  5. At the risk of becoming tiresome on this subject, selling marijuana isn’t legal in Washington or Colorado, and anyone who acts as if it is is a fool. The only move for advocates is to lobby the feds to de-schedule marijuana.

    Even if DEA isn’t going to do anything about people who comply with state regulations while committing a federal felony, you still have the IRS following 26 USC 280E. Think of the markup Washington’s sellers are going to have to have to end up with an after tax profit. (Here’s a Tax Court opinion that covers the issue very well.)

    1. Woah! 280E is going to be one NASTY surprise for businesses unaware of it’s ramifications. That puts the price of ‘legal’ pot well over black-market street weed in WA for sure. Good luck with that!

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