Unit 1: Market Failure and externalities.

The most dangerous drug is legal!

Professor David Nutt’s report on Drink and Drugs in current issue of The Lancet highlights the difficulties in assessing the scale of negative externalities created by the misuse of drugs and alcohol.



Mark Easton’s Blog on the BBC considers the evidence Nutt’s team cited such as drug specific mortality, drug related mortality, crime, injury, environmental damage, and economic cost. Each substance was given a score in each category from zero to 100.


The results tables showed that the most dangerous drugs with the highest private costs to individual users were heroin, crack cocaine and crystal meth (part scores 34, 37, and 32, respectively). But when all factors were taken into account (the external cost) alcohol was found to be most harmful, followed by heroin and crack (46, 21, and 17, respectively).


Ecstasy and LSD were found to be the least damaging.The drugs with the highest social costs were considered by the experts to be alcohol with a harm score of 72, heroin (55) and crack cocaine (54) in second and third places.

The weighting process is necessarily based on judgement, so it is best done by a group of experts working to consensus”. The weighting of the damage or external cost is based on the judgement of the team. Easton and other journalists note that Nutt’s ranking of drugs is at complete odds with the official Home Office classification system.


The study argues that alcohol although legal, remains the most harmful drug in stark contrast to the much less harmful effect of Class A drugs including ecstasy and LSD.


The spillover effects of alcoholic drinks are debatable, and raise questions about the estimated Private and External Costs given by the Home Office and those assumptions, and weightings used in the research methodology by Professor Nutt’s team. How far it changes behaviour and government policy remains to be seen, but the response so far also emphasies that economics is never far away from value judgements and controversy.

For more information and a short video on the topic, click here...

Q. How would you solve the issue of alcohol consumption in the UK? (Explain & evaluate two possible solutions for 10 marks)