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The cocaine and heroin markets in the era of globalisation and drug reduction policies

Costa Storti, Claudia and de Grauwe, Paul (2009) The cocaine and heroin markets in the era of globalisation and drug reduction policies. International Journal of Drug Policy, 20 (6). pp. 488-496. ISSN 0955-3959

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Abstract

Background Despite the large volume of public effort devoted to restrain drug supply and the growing attention given to drug demand reduction policies, the use of cocaine and heroin remains steady. Furthermore, retail drug prices have fallen significantly in Europe and the US. This puzzling evidence leads us to develop a model aiming at systematically analysing illicit drug markets. Methods We model the markets of cocaine and heroin from production to the final retail markets. One novelty of the analysis consists in characterising the retail market as a monopolistic competitive one. Then, upper level dealers have some market power in the retail market. This allows them to charge a markup and to earn extra profits. These extra profits attract newcomers so that profits tend to fall over time. Results Theoretical model was used to analyse the effect of supply containment policies on the retail market, the producer market and the export–import business. This introduces the discussion of the impact of demand reduction policies on the high level traffickers’ profit. Finally, globalisation enters in the model. Conclusions Law enforcement measures increase the risk premia received by the lower and higher level traffickers. Consequently, trafficking intermediation margins tend to increase. However, globalisation has the opposite effect. It lowers intermediation margins and, then, pushes retail prices down, thereby stimulating consumption. In doing so, globalisation offsets the effects of supply containment policies. Finally, we discuss how the effectiveness of supply containment policies can be enhanced by combining them with demand reduction policies.

Item Type: Article
Official URL: http://www.journals.elsevier.com/international-jou...
Additional Information: © 2009 Elsevier
Library of Congress subject classification: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HV Social pathology. Social and public welfare. Criminology
Journal of Economic Literature Classification System: F - International Economics > F1 - Trade > F10 - General
K - Law and Economics > K4 - Legal Procedure, the Legal System, and Illegal Behavior > K42 - Illegal Behavior and the Enforcement of Law
Sets: Departments > European Institute
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 05 Oct 2012 13:57
URL: http://eprints.lse.ac.uk/46604/

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