Modelling Drug Markets

• NCJ Number: 139739
• Author(s): M A R Kleiman
• Date Published: 1991
• Length: 314 pages
• Grant Number(s): 89-IJ-CX-0001
• Agencies: NIJ-Sponsored
• Publication Type: Research (Theoretical)

Annotation

The economic analysis of drug dealing and drug policy continues to develop, particularly with regard to drug markets, compliance and enforcement, production factors in retail drug dealing, changes in import and retail drug prices, drug law enforcement, and characteristics of drug supply and demand.

Abstract

It has been argued that high-level drug law enforcement efforts, especially interdiction, will have only small effects on final retail prices and thus on consumption. That argument depends on the causal relation between wholesale and retail drug prices. If much of the cost of retail drug dealing tends to be proportional rather than merely additive to the wholesale cost of drugs, the effects of interdiction and other high-level enforcement efforts will be greater than previous analysis suggests. Since enforcement resources are scarce, the probability of enforcement action against any one transaction falls as the number of transactions increases. This external economy of scale reinforces upward and downward swings in drug volumes. Therefore, enforcement resources will be most effective if they are concentrated rather than dispersed and if enforcement leads rather than lags trends in physical drug volumes. Search costs of drug purchases and neighborhood effects of drug dealing are determined by retail market conditions. Enforcement efforts can be designed to make flagrant dealing impractical, and an analysis of production factors in retail drug dealing can aid this design effort. Figures