The United States is experiencing a wave of drug-related deaths from the drug fentanyl. It is a prescription drug that is used to treat people with severe pain, particularly after surgery. But fentanyl is being increasingly used as a recreational drug. Fentanyl is a synthetic opioid 50 times more powerful than heroin.

Last year nearly 100,000 people in the US died of a drug overdose in the US with over 60 per cent related to people taking fentanyl. 

The economic theory surrounding fentanyl, like other recreational drugs, is the concept of merit and demerit goods. This theory was first published by the American economist Richard Musgrave in his paper, "A Multiple Theory of Budget Determination," published in 1957. Musgrave argued that merit and demerit goods led to market failure which provided a strong case for government intervention. 

As a demerit good, fentanyl leads to market failure through the consumption negative externalities associated with users taking the drug for recreational purposes. For example, people who take the drug are likely to be less productive at work and their medical treatment for the negative health consequences of taking the drug is a drain on a country’s health service. The other case for government intervention in the fentanyl market is the government's desire to protect the population from the negative consequences of taking the drug. 

It is worth pointing out that fentanyl can also be considered a merit good when it is viewed in a medical context as a pain relief drug. 

The problem with government intervention in the market for recreational drugs and in this case, fentanyl is that it is fraught with difficulties. Making drugs illegal means their provision goes to criminal producers in the parallel market which brings its own costs in terms of crime and drug-related violence. Any product produced in the parallel market is also likely to be more harmful to consumers because the manufacture and distribution of the good is unregulated by the government.

Governments around the world struggle to deal with the challenge of recreational drugs and the problems highlighted by the fentanyl crisis in the US. 

Possible questions to discuss with a class

1. Why is fentanyl sometimes considered a merit good and at other times a demerit good?

2. What are the negative externalities associated with fentanyl?

3. Why is it difficult to control the supply of recreational drugs like fentanyl?