Hopping on the Methadone Bus
University of Otago - School of Business - Department of Economics
Christoph R. Schumacher
Massey University - Department of Commerce
January 16, 2009
This paper investigates the impact of a 'free drug program' on the market equilibrium of drugs. We introduce a screening model of the hard drug market in which dealers use payment and punishment options to screen between high and low risk users. We show that, if a free drug program selects sufficiently many high risk drug users, the pure-strategy separating market equilibrium ceases to exist and a symmetric mixed-strategy equilibrium results, in which drug users derive a higher expected utility. This encourages new drug users to enter the market. The novelty of the paper is the transmission mechanism for this effect, which is via the influence on market price.
Number of Pages in PDF File: 23
Keywords: Drugs, Drug Policy, Drug Dealing, Free Drug Programs, Screening
JEL Classification: D11, D82, I18working papers series
Date posted: January 25, 2009
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