Degree Name

Master of Arts

Department or Program



Dai, Chifeng


This paper analyzes optimal government expenditures for enforcement and interdiction of marijuana after the drug has been legalized in some capacity. It models a pre- and post-legalization market for marijuana in which two firms operate. In the pre-legalization model, both firms operate illegally and in the post-legalization market, only one firm operates illegally. Backward induction is used to solve for the government’s optimal expenditures in period one and each firm’s output decision in period two. Comparing both outcomes shows that expenditures are lower in the post-legalization regime and market share and profits are reduced for the firm operating illegally.