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Not a MyNAP member yet? Register for a free account to start saving and receiving special member only perks. T his chapter uses the idea of a drug market as an analytical concept with which to consider how market-level demand and supply forces affect prices and drug use. Other social science research, such as ethnographic studies, provides much richer descriptions and other insights about how actual illegal drug markets function on a day-to-day basis, and our discussion of the distinctive features of drug markets incorporates insights from this type of research. Further developing the economic approach to capture more of the features of real-world drug markets across the world is an important on-going research topic. This chapter provides a summary of what is known about major illegal drug markets. It first lays out the basic demand-and-supply analysis framework and explores the strengths and limitations of the basic models, and then considers three distinctive features of illegal drug markets:. The supply-and-demand model provides the basic economic framework for drug policy. Efforts to provide economic models of illegal markets go back at least four decades e. The implicit features of many legal markets in modern economies—for example, quality certification and available legal mechanisms to guard against fraud—are typically absent from illegal drug markets. Moreover, many key variables are difficult to observe. Illegal drug markets are also characterized by complex features, such as addiction which means responses to increases and decreases in prices may differ and high search costs so that consumers must invest time in finding information about the product that are sometimes found in legal markets but that are difficult to incorporate in simple models. Despite these limitations, the basic supply-and-demand model provides a specific language to explore causal pathways of proposed public policies. It provides a framework to interpret available data on observed prices and quantities of illegal substances in particular markets. It focuses attention on basic parameters—the sensitivity of supply and demand to prevailing prices, production technologies, and costs—that are influenced by public policy. Finally, these simple models provide points of departure for richer theoretical and empirical investigations of particular markets. Figure presents a very basic model to illustrate the impact of a supply-side law enforcement intervention. The market demand curve D1 slopes downward: at higher prices, users in the aggregate purchase a lower quantity of the drug in question. The market demand curve reflects two types of responses to higher prices: some drug users cut back on their consumption, while others may drop out of the market and become nonusers at least of the drug in question. As is discussed below, addiction raises the possibility of asymmetry in that lower prices may increase participation; higher prices may not reduce participation in the short run. The market supply curve S1 slopes upward: at higher prices, the supply network is willing to provide more drugs to the market. The market supply curve again reflects two types of responses to higher prices: some current suppliers expand the size of their drug-dealing business, and there may also be new entrants who provide new sources of supply. A supply-side intervention—such as increased border interdiction or more intensive police actions against street dealers—causes the market supply curve to shift up, or alternatively to the left, to curve S2. The vertical distance between S1 and S2 may be interpreted as the increase in unit production and distribution costs induced by supply-side interventions. Suppose, for example, that police increase arrests of street-level dealers. How much this raises unit production costs reflects how much drug-selling organizations have to raise wages to compensate dealers for the additional risk, on the assumption that the dealers can estimate that rise. It also reflects how effectively these organizations can shift their production and distribution systems in response to these enforcement shifts. If sellers can shift sales activities indoors or otherwise avoid the increased enforcement, the shift from S1 to S2 will be small. The standard model assumes that the market price adjusts until an equilibrium is reached at which the quantity demanded equals the quantity supplied. The original equilibrium in Figure is E1: Q1, P1. After the supply-side intervention, a new equilibrium is reached, E2: Q2, P2. This new equilibrium reflects an interaction of both supply and demand factors. The relative slopes of these curves determine the extent that increased production costs are borne by consumers in the form of higher prices. Even when this model is not explicitly used, this fundamental insight of the supply-and-demand model is commonly recognized. For example, when drug prices have remained constant or have fallen during a period of increased antidrug efforts, many observers conclude that the war on drugs has failed e. In essence, these observers view the market price of a drug as a sufficient statistic for, or at least a useful indicator of, conditions in the drug market. Although it cannot be interpreted as a performance measure without other indicators, it does have substantial information. However, the information contained in the market price must be interpreted carefully. The first insight is illustrated by the difference between Figures and That comparison shows that the magnitudes of the effects of the same supply-side intervention depend on the steepness of the demand curve for drugs. In Figure with a relatively flat demand curve i. However, precisely because drug demand is so responsive to the higher prices caused by the intervention, the price does not have to increase much to restore equilibrium. In contrast, the sharp increase in price seen in Figure is accompanied by a smaller reduction in the quantity of drugs consumed—the war on drugs did not work that well. The comparison of Figures and shows that it is important not to confuse the indicator—the market price—with the policy objective reducing drug use. Which figure is a more realistic description of the drug market depends on the price elasticity of demand discussed in more detail below. In this situation elasticity denotes the percentage change in the quantity of drug demanded given a 1 percent increase in the price. In similar fashion, the price elasticity of supply denotes the percentage change in the quantity of drug supplied given a 1 percent increase in the price. One might assume, based on the commonsense notion of addiction, that drug demand is relatively inelastic or unresponsive to prices, which is the assumption behind Figure However, as we discuss in more detail below, the price elasticity of demand varies across drugs heroin, cocaine, marijuana , types of users heavy, occasional , and time with. Given these definitions, the price elasticity of demand is generally negative, and the price elasticity of supply is generally positive. In fact, demand for heavily addictive substances is consistent with a wide range of price elasticities. Suppose, for example, that an individual spends every cent of her monthly income on crack cocaine. If crack cocaine prices rise by 1 percent with no accompanying change in her economic circumstances, she will spend the same amount and thus purchase 1 percent less crack than she did before. This implies a price elasticity of demand of —1. Luksetich and White suggest, based on early ethnographic work, that heroin addicts may have a fixed budget for all items other than heroin, representing the minimum that is needed for shelter, food, and clothes; if so, there would be unitary price elasticity. In contrast, more affluent users of marijuana, for whom the drug accounts for a small share of their total incomes, may change their total consumption very little in response to price increases. A second insight is that many market factors other than price can cause drug demand to shift. The analytical emphasis of the supply-and-demand model is on prices and quantities, but this analytical emphasis does not mean that price is the most important empirical demand influence. The demand curve shows the relationship between quantity demanded and price if all other influences are constant. When one or more of these other influences change, the entire demand curve shifts: at each given price, the quantity of the drug demanded has shifted. Potential demand shifters include demand-side public policies, such as antidrug media campaigns or treatment programs; law enforcement measures that target users; demographic factors; changing attitudes toward intoxication and self-control; and economic factors, such as income and employment opportunities. Under the conventional view that drug demand is relatively price inelastic, changes in these other influences are likely to be important explanations for observed variation in drug markets over time and across geographic units, particularly since some of them, especially tastes, can change rapidly. Demand-side policies seek to shift the demand curve down left. All else being equal, such policies shift the equilibrium down the supply curve, resulting in a lower equilibrium price and a lower quantity of drugs consumed. If social harms associated with illegal drug use are positively related to the dollars spent on these substances since these are criminal incomes , demand-side interventions are especially attractive because they induce favorable price and quantity effects, while supply-side interventions generate only favorable quantity effects. Demand shifts can also obscure the impact of supply-side interventions. Figure shows a hypothetical situation in which a supply-side. An example of such a demand influence is an increase in the population cohort size of adolescents and young adults. Jacobson found that marijuana prevalence was strongly and positively correlated with the number of to year-olds in the U. At the new equilibrium, the quantity of drug use has not changed much because of the offsetting effects of the supply-side intervention and the demand shift. However, the supply-side intervention succeeded in preventing drug use from increasing to Q3, which would have been the result if the demand had shifted in the absence of the intervention. In this case, the price increase from P1 to P3 is a valid indicator of the success of the supply-side intervention, even though success is not apparent in changes in the quantity used. The discussion so far has used the basic model of supply and demand as described in any introductory economics textbook e. The textbook model is about an ideal market with many rational and well-informed consumers and producers who buy and sell units of a homogenous commodity. The markets for an agricultural product like wheat might approach this ideal. Yet in many respects, conditions in the markets for illegal drugs seem to dramatically depart from the textbook model. These departures do not invalidate insights from the basic model of supply and demand, but they once again call for careful interpretation. Many legitimate markets also diverge, in their particulars, from the basic supply-and-demand model. The phenomenon of unemployment suggests excess supply of workers at a given wage within the labor market. Such economic models as efficiency wage theory seek to explain why wages persist above the market-clearing level Akerlof and Yellen, Illegal drug consumers cannot directly verify product quality prior to purchase. Yet the same might be said of the cross-country traveler who stops at a roadside diner or the life insurance company that is forbidden by law from performing certain informative medical tests. Prior to the founding of eBay and related websites, search costs and quality differences were dominant factors in the markets for collectibles and antiques. Yet even when compared with those market factors, unknown quality variation is likely greater for illegal drugs. One reason is that, even after consumption, the quality of cocaine or heroin can be rated only imperfectly; given substantial variation over time for a given individual in the experience provided by a given quantity of cocaine, heroin, or other substances. Another distinctive element of illegal drug markets is the intermingling of the supply and demand sides. Many heavy users of illegal drugs engage in some drug selling, with the proportion of seller-users differing by substance see National Institute of Justice, Frequent users may account for a large share of the drug-selling workforce and sellers may account for a large share of total consumption; selling is a highly opportunistic activity, so that most dealers do it only on an occasional basis e. Users are also important in the supply side of heroin and cocaine markets for another reason. Facing limited opportunities in legal labor markets and already in contact with drug-selling networks, users provide a ready low-wage labor pool for illegal markets. Thus, demand-side measures, such as expanded treatment, may raise distribution costs for drugs because it takes users out of the drug-selling labor force. Users play an important, if casual, role in the marijuana market; in an analysis of data from the National Household Survey on Drug Abuse NHSDA , Caulkins and Pacula found that 89 percent of marijuana users most recently acquired the substance from a friend or relative, typically in small amounts. Addiction is also an important and distinctive feature of the illegal drug market, though it is also important for the markets for tobacco, alcohol, and caffeine. A sophisticated literature exists to explore the supply and demand sides of these markets for addictive legal products. In many analyses, researchers examined variations across the states in tobacco and beer excise taxes to explore supply-demand models see, e. Important lines of theoretical and empirical research in economics show that the notion of rational drug consumers is not as far-fetched as it. In a seminal work, Becker and Murphy developed a model with rational consumers that demonstrates how many of the phenomena of addiction can be analyzed in an economic model. Orphanides and Zervos extended the rational addiction model to incorporate learning and regret. Significant criticisms are made of rational addiction and related models. Such models may presume a high level of foresight and market knowledge among consumers—a combination that rests uneasily with the high discount rates observed in empirical research Becker et al. More recent work in behavioral economics addresses these difficulties. These analyses incorporate insights from psychological studies, including certain departures from rationality, into economic models. Gruber and Koszegi reformulated the rational model to incorporate time-inconsistent preferences. Most recently, Bernheim and Rangel developed an economic model of cue-triggered addiction. In this framework, a consumer is assumed to operate in two modes. Because addicts know they make bad decisions while in the hot mode, they can make life-style changes to reduce the probability of that mode. Notably, the different theoretical economic models of addiction yield the same prediction: drug users will respond to higher prices, so the market demand curve slopes downward. Many of these models also suggest that users and potential users are more responsive to long-standing or permanent price changes than they are to recent or transient changes in price. Empirical studies of the price responsiveness of drug demand are discussed in more detail below. Although it has been hard to pin down the magnitude of the price responsiveness as summarized by the price elasticity of demand , there is general empirical support for the proposition that drug demand curves slope downward. Analyses of legal addictive substances provide two broad insights that likely apply to illegal substances. First, the demand curves of new and low-income consumers are more price elastic than other consumers. Second, as noted above, consumers respond more aggressively to permanent price changes than they do to transient fluctuations. Elasticity shows up in a related analytic literature that examines the efficiency consequences of drug control policies. For example, Becker and colleagues show that the social costs of enforcement policies decline with. The more there is inelasticity in either supply or demand, the higher are the social costs, construed narrowly, from constraining the quantity consumed. As noted above, it is impossible to assess policies aimed at the demand side of a market without some basic understanding of the supply side. A comparatively small economic literature examines points of similarity and departure between the supply side of the illegal drug market and standard economic accounts for a useful review, see Rhodes et al. Superficially, the decentralized network of dealers, producers, and the various intermediaries between them seems to bear little resemblance to an organized supply chain. Nevertheless, basic economic concepts provide an organizing framework to understand the actors on the supply side and how they react to supply-side interventions. Levitt and Venkatesh provide a uniquely detailed organizational analysis of one drug-selling operation. Drawing on internal financial data, the authors describe the franchise nature of Chicago drug selling, in which gangs and their subunits control specific areas where illegal transactions can occur. They suggest that this is in effect a tournament compensation system, in which low-level dealers earn relatively low wages in return for the prospect of advancement. The authors also document the high rates of injury and death among street-level dealers, far higher than those of most civilian occupations even policing. There are some troubling aspects to the Levitt and Venkatesh data. We mention just three ways in which their data are inconsistent with other data on drug markets. They also estimated a 4 percent annualized risk of a homicide death for the gang. However, the FBI has never estimated more than 2, drug-related homicides annually, almost certainly too low a figure given the results of individual city studies e. But for crack alone, it is unlikely to be as high as 2, of a total of 20, homicides from all causes , which, with a mortality rate of 4 percent, suggests only 62, sellers. With 30 street dealers, this would total about two sales per dealer per day, assuming that individuals sell only about half the days of the year. This is a very low volume. In the most closely comparable study, involving street-level dealers on cocaine and heroin in Washington, DC, in based on interviews with dealers as they entered probation, Reuter and colleagues reported about 12 sales transactions for a 4-hour selling session, as well as substantially higher annual revenues per dealer. Although this study provides important insights about the dynamics of drug-selling careers, the actual numbers should be treated with caution. Caulkins and Reuter provide a useful breakdown of the magnitude of the components of costs of cocaine. They estimate that the wholesale price of cocaine in Colombia accounts for about 1 percent of the retail price of the drug on the street in the United States. This study relied heavily on the Washington, DC, study noted above Reuter et al. Supply-side intervention can thus increase retail drug prices by increasing the risk of incarceration and by increasing several other components of costs, such as seizures of drugs and assets. Kuziemko and Levitt estimate that increases in the certainty and severity of incarceration between and raised cocaine prices by percent. The implied elasticity of price with respect to incarceration rates was low. During that year period, incarceration for drug law violations increased from 82, to ,, about two-thirds of which were cocaine offenders roughly , This analysis, though just for one period and with. Kilmer and Reuter provide a more fully documented price chain for both cocaine and heroin for Another important complexity arises because the transactions between drug users and drug sellers differ sharply from the textbook model. In that model, consumers pay an agreed-upon price for a certain quantity of a good of known quality, such as a gallon of gasoline of a specified octane. This conventional pricing has obvious advantages for illegal transactions, but it can result in poorly informed consumers since the weight and purity of the contents of the nickel and dime bags are not standardized. To interpret data on drug prices, researchers commonly adjust the price for weight and purity. The resulting price per pure gram of drug corresponds to the notion of price in the textbook model, but it does not correspond to actual transaction prices. Drug users, and even drug dealers, do not know the exact number of grams of pure drug in the dime bags they exchange. As a result, there is great dispersion in the drug prices paid. This uncertainty by both consumers and sellers about the real price and purity of drugs may have important implications for the behavior of the market. For example, it encourages customers to purchase regularly from more than one seller in order to obtain information about the relative quality-adjusted price of their principal source. For sellers, it allows limited strategic manipulation of these prices. For a formal model that attempts to incorporate these aspects of the market, see Galenianos and colleagues The process of consumer search plays a key role and can have complex implications. For example, enhanced law enforcement efforts may hinder consumer efforts to switch suppliers or compare prices. If consumers are targeted e. Although several theoretically plausible accounts exist of consumer demand for addictive substances, existing research rarely provides suffi-. Drug markets include many interconnected or unobservable components that complicate economic analysis. For analytical purposes, one key question is whether conventional pricing the use of a standardized price, with variable and unknown quantity changes the predictions of the supply-and-demand model, such as the prediction that a supply-side intervention will reduce quantity and increase price. Instead of raising the price of a dime bag, dealers are assumed to react to a supply-side intervention by cutting the weight or purity of the bag. If users consume the same number of dime bags per day, the reduction in weight or purity means that they are consuming a reduced quantity of pure drug and paying a higher price, adjusted for weight and purity. Users may react to the cut in weight or purity by purchasing more dime bags. Surveys provide greater information about drug demand than they do about drug supply. As noted above, changes in observed prices reflect the relative slopes the relative elasticities of both supply-and-demand curves. In legal markets with good data on prices and quantities, estimating demand-and-supply curves is a straight-forward, although often challenging, econometric exercise. The covert nature of illegal drug markets means that prices and quantities are not easily observed, if at all, but some guidance can be found in studies of legal markets. In competitive markets that display constant returns to scale, supply curves tend to be more elastic than demand curves. These assumptions have been explicitly addressed in tobacco and alcohol markets, which find highly elastic supply Chaloupka et al. There are no comparably sound studies about illegal drug markets. Most studies of illegal drug markets implicitly or explicitly assume very high elasticities. For example, Rhodes and colleagues assume very elastic cocaine supply on the grounds that the agricultural production technology is simple and inexpensive. To the extent that scarce resources are required—for example, access to constrained smuggling routes or specific marketing channel to street users—some upward slope may be found. One recent paper scrutinizes cross-state variation in the sanctions imposed on marijuana users to examine the elasticity of marijuana supply Pacula et al. With lower user sanctions, the market demand curve for marijuana increases shifts up. The authors found that in response. This effect implies that the marijuana supply curve slopes upward is not perfectly elastic in this market over the short run; in order to meet the new demand spurred by lower user sanctions, suppliers require more compensation in the form of higher prices. A second analysis scrutinizes demographic changes to examine marijuana markets Jacobson, This paper demonstrates that youth cohort size is positively related to marijuana use prevalence and negatively related to street marijuana prices. This is an instance in which illegality leads to a tighter connection between changes in the demand side and supply elements. There is a substantial noneconomic literature about the supply side of drug markets, particularly at the retail level. For New York City in particular, there is a long tradition of ethnographic studies of the subject e. For example, Bourgois spent 3 years in a Hispanic section of Harlem observing the activities and lives of a small group of dealers Bourgois, A report of the National Research Council made extensive reference to work by Curtis and Wendel As summarized by Johnson and colleagues , the New York drug market had been through several transformations between and with varying degrees of organization. Except for temporary and quite local situations, there is rarely mention of market power by any group of drug retailers or of very large retailing organizations. At the importing and wholesale level there may indeed be large organizations, with hundreds of employees and sales volumes in the tens of millions. An excellent and undercited study is that by Fuentes describing Colombian-run importing organizations in the early s. There does not appear to be any systematic synthesis of these studies that would allow general statements about the factors that influence, for example, the extent to which a market is dominated by youth gangs involved in other criminal activities or the share of revenues that go to retail sellers or to higher-level participants. Both this line of research and the economics literature would be enhanced by more collaborative work. Three overlapping reviews explore price elasticies of demand for illegal substances. Before briefly summarizing their findings, it is useful. Participation elasticity denotes the percentage change in the number of individuals who report any substance use that corresponds to a unit percentage change in price. Participation elasticities are especially important when the goal is to minimize the number of individuals who report any substance use. Conditional elasticity is the percentage change in consumption that corresponds to a unit percent change in price among individuals who consume a positive quantity of the drug. If Q is the means quantity consumed between active users,. Total price elasticity of demand represents the percentage change in total consumption corresponding to a unit percentage change in price. As defined above, the total price elasticity of demand is the sum of the conditional elasticity and the participation elasticity. Currently, the drug research offers more analyses on participation elasticities than on the other two quantities. A second important distinction concerns long-run and short-run demand elasticities. Economic theory predicts that consumers should be more sensitive to long-term price changes than transient ones. This pattern holds true for most goods, but particularly for addictive ones. Under a rational addiction framework, long-run price increases raise the cost of initiating use. Under a variety of other frameworks, such as those which require adjustment costs, consumers may have some lag in responding to price changes. Using Monitoring the Future MTF Survey data collected from high school seniors, he finds a participation elasticity of —0. This point estimate is very similar to that reported by Pacula and colleagues , who reported that the elasticity is between —0. The authors examined demand behaviors among more chronic users by examining drug use forecasting data from the National Institute of Justice, which provide information from arrestees. Using data, the authors find a conditional price elasticity of approximately —0. In the case of cocaine, several studies indicate a participation price elasticity of demand for cocaine participation in the past year between —0. These studies indicate the highest participation elasticities for youth and young adults. One strand of studies links price series to the receipt of drug-related emergency medical services. This approach provides an independent measure of the extent of use, since it will rise with the amount consumed other things being unchanged. There is accumulating evidence that heavy cocaine and heroin use are especially price sensitive, perhaps because heavy users face more binding budget constraints on their ability to finance a high level of drug consumption Caulkins, A second strand of literature explores self-reported or chemically detected substance use among arrestees see Rhodes et al. Unfortunately, the strong correlation over time and space in drug prices hinders efforts to obtain definitive elasticity estimates. The results reported by Grossman illustrate the underlying problem. In this analysis, Grossman examines the relationship between drug prices and drug-related emergency department visits. He estimates two reasonable specifications, one that controls for a linear time trend and one that controls for linear, quadratic, and cubic time trends. As shown below in Table , elasticity estimates are markedly different and the pattern is inconsistent across drugs and methods. The inconsistent estimates in Table demonstrate that in many cases, econometric analysis of aggregate data will not yield useful information about the price elasticity of the demand for illegal drugs. In the most recent analyses in this literature, Dave examined cocaine and heroin-related emergency department admissions in 21 large metropolitan areas. The author found an elasticity of the probability of a cocaine mention with respect to cocaine prices was —0. The author also found evidence that heroin and cocaine act as complements in consumption. In addition, he found negative lagged price effects, a pattern consistent with either an addiction model or a cumulative insult model of individual vulnerability to drug-related health concerns. In another study, Dave reported on illegal drug use as detected by urinalysis among arrestees. The author found short-term participation elasticities of approximately —0. The most striking aspects of these papers are the low-point estimates of participation elasticity compared with prior work. The basic supply-and-demand approach from economics provides a useful analytical framework to understand markets for illegal drugs. On the conceptual side, we draw two main lessons. First, the economic approach is flexible enough to capture many of the special features of illegal drug markets and provides important insights. The second lesson, however, is that much remains to be done to more fully incorporate insights from richly detailed descriptions of illegal drug markets into the economic approach. On the empirical side, the main lesson to be drawn is the difficulty of estimating basic relationships between illegal drug prices and the behavior of users and suppliers. This difficulty does not mean the enterprise should be abandoned, but the current empirical understanding should be viewed as very much a work in progress. Akerlof, G. Quarterly Journal of Economics , 84 3 , Efficiency Wage Models of the Labor Market. Auld, M. An empirical analysis of milk addiction. Journal of Health Economics, 23 6 , 1,, Becker, G. Crime and punishment: An economic approach. Journal of Political Economy, 76 2 , A theory of rational addiction. Journal of Political Economy, 96 , Grossman, and K. An empirical model of cigarette addiction. American Economic Review, 84 3 , Murphy, and M. The market for illegal goods: The case of drugs. Journal of Political Economy, 1 , Bernheim, B. Addiction and cue-triggered decision processes. American Economic Review , 94 5 , 1,, Bourgois, P. New York: Cambridge University Press. Caulkins, J. Drug prices and emergency department mentions for cocaine and heroin. American Journal of Public Health, 91 9 , 1,, Price and purity analysis for illicit drug: data and conceptual issues. Marijuana markets: Inferences from reports by the household population. Journal of Drug Issues, 36 1 , What price data tell us about drug markets. Journal of Drug Issues, 28 3 , Chaloupka, F. Rational addictive behavior and cigarette smoking. Journal of Political Economy, 99 4 , Cummings, C. Morley, and J. Tax, price and cigarette smoking: Evidence from the tobacco documents and implications for tobacco company marketing strategies. Tobacco Control, 11 , II Cook, P. Drinking and schooling. Journal of Health Economics, 12 4 , Curtis, R. Toward the development of a typology of illegal drug markets. Crime Prevention Studies, 11 , Dave, D. The effects of cocaine and heroin price on drug-related emergency department visits. Journal of Health Economics, 25 2 , Easterlin, R. What will be like? Socioeconomic implications of recent twists in age structure. Demography, XV , Frank, R. Principles of Microeconomics, 2nd edition. New York: McGraw-Hill. Fuentes, J. PhD dissertation. Galenianos, M. Persico, and R. Goldstein, P. Brownstein, and P. Drug-related homicide in New York: and Crime and Delinquency, 38 4 , Grossman, M. Chaloupka, and K. Illegal drug use and public policy. Health Affairs, 21 2 , Gruber, J. Theory and evidence. Quarterly Journal of Economics, 4 , 1,, Hagedorn, J. The business of drug dealing in Milwaukee. Wisconsin Policy Research Institute , 11 5. Jacobson, M. Baby booms and drug busts: trends in youth drug use in the United States, Johnson, B. Goldstein, E. Preble, J. Schmeidler, D. Lipton, B. Spunt, and T. Lexington, MA: D. Golub, and E. The rise and decline of hard drugs, drug markets, and violence in inner-city New York. Blumstein and J. Wallmen Eds. Kilmer, B. Prime numbers: Doped. Kuziemko, I. An empirical analysis of imprisoning drug offenders. Journal of Public Economics, 88 , 2,, Levitt, S. Quarterly Journal of Economics, 3 , Luksetich, W. Heroin: Price elasticity and enforcement strategies. Economic Inquiry, 21 , National Drug Intelligence Center. National Institute of Justice. Washington, DC: U. Department of Justice. National Research Council. Manski, J. Pepper, and C. Petrie Eds. Office of National Drug Control Policy. Orphanides, A. Rational addiction with learning and regret. Journal of Political Economy, 4 , Pacula, R. Grossman, F. Chalupka, P. Johnston, and M. Marijuana and youth. Guber Ed. Kilmer, M. Grossman, and F. Risks and prices: The role of user sanctions in marijuana markets. The B. Journal of Economic Analysis and Policy, 10 1 , Art. Preble, E. Substance Use and Misuse, 4 1 , Reuter, P. Bulletin on Narcotics, 56 , MacCoun, and P. Rhodes, W. Johnston, S. Han, Q. McMullen, and L. Cambridge, MA: Abt Associates. Hunt, M. Chapman, R. Kling, D. Fuller, and C. Walsh, J. Drug Policy: At What Cost? Statement before the Joint Economic Committee of the U. Congress, June Zinberg, N. Despite efforts to reduce drug consumption in the United States over the past 35 years, drugs are just as cheap and available as they have ever been. Cocaine, heroin, and methamphetamines continue to cause great harm in the country, particularly in minority communities in the major cities. Marijuana use remains a part of adolescent development for about half of the country's young people, although there is controversy about the extent of its harm. Given the persistence of drug demand in the face of lengthy and expensive efforts to control the markets, the National Institute of Justice asked the National Research Council to undertake a study of current research on the demand for drugs in order to help better focus national efforts to reduce that demand. This study complements the book, Informing America's Policy on Illegal Drugs by giving more attention to the sources of demand and assessing the potential of demand-side interventions to make a substantial difference to the nation's drug problems. Understanding the Demand for Illegal Drugs therefore focuses tightly on demand models in the field of economics and evaluates the data needs for advancing this relatively undeveloped area of investigation. Based on feedback from you, our users, we've made some improvements that make it easier than ever to read thousands of publications on our website. Jump up to the previous page or down to the next one. Also, you can type in a page number and press Enter to go directly to that page in the book. Switch between the Original Pages , where you can read the report as it appeared in print, and Text Pages for the web version, where you can highlight and search the text. To search the entire text of this book, type in your search term here and press Enter. Ready to take your reading offline? Click here to buy this book in print or download it as a free PDF, if available. Do you enjoy reading reports from the Academies online for free? Sign up for email notifications and we'll let you know about new publications in your areas of interest when they're released. Get This Book. Visit NAP. Looking for other ways to read this? No thanks. Suggested Citation: '2 Markets for Drugs. Understanding the Demand for Illegal Drugs. Page 18 Share Cite. Page 19 Share Cite. Page 20 Share Cite. However, as we discuss in more detail below, the price elasticity of demand varies across drugs heroin, cocaine, marijuana , types of users heavy, occasional , and time with 1 Given these definitions, the price elasticity of demand is generally negative, and the price elasticity of supply is generally positive. Page 21 Share Cite. Page 22 Share Cite. Figure shows a hypothetical situation in which a supply-side FIGURE Drug supply and demand with simultaneous shifts in demand and supply curves. Page 23 Share Cite. Page 24 Share Cite. Intermingling of Supply and Demand. Role of Rationality and Efficiency. Page 25 Share Cite. Page 26 Share Cite. Scope of Individual Operations. Page 27 Share Cite. Some Cost and Price Factors. Page 28 Share Cite. Page 29 Share Cite. Page 30 Share Cite. Page 31 Share Cite. Page 32 Share Cite. Page 33 Share Cite. Reprinted with permission. Page 34 Share Cite. Page 35 Share Cite. Page 36 Share Cite. Page 17 Share Cite. Login or Register to save! Stay Connected! NOTE: Participation elasticities in alternative statistical specifications.