A Structural Model of the Retail Market for Illicit Drugs

• 成果类型: Article
• 署名作者: Galenianos, Manolis; Gavazza, Alessandro
• 署名单位: University of London; Royal Holloway University London; University of London; London School Economics & Political Science
• 刊物名称: AMERICAN ECONOMIC REVIEW
• ISSN/ISSBN: 0002-8282
• DOI: 10.1257/aer.20150540
• 发表日期: 2017
• 页码: 858-896
• 关键词: search costs; QUALITY; price

摘要

We estimate a model of illicit drugs markets using data on purchases of crack cocaine. Buyers are searching for high-quality drugs, but they determine drugs' quality (i.e., their purity) only after consuming them. Hence, sellers can rip off first-time buyers or can offer-higher-quality drugs to induce buyers to purchase from them again. In equilibrium, a distribution of qualities persists. The estimated model implies that if drugs were legalized, in which case purity could be regulated and hence observable, the average purity of drugs would increase by approximately 20 percent and the dispersion would decrease by approximately 80 percent. Moreover, increasing penalties may raise the purity and affordability of the drugs traded by increasing sellers' relative profitability of targeting loyal buyers versus first-time buyers.