The Relationship between Illegal Drug Prices at the Retail User and Seller Levels

10 Pages Posted: 30 May 2006

See all articles by Jeffrey S. DeSimone

Jeffrey S. DeSimone

University of Texas at Arlington - College of Business Administration - Department of Economics; National Bureau of Economic Research (NBER)

Abstract

This article uses 1985-2000 DEA data on marijuana and cocaine prices in various metropolitan areas to empirically test two contrasting theories of the relationship between illegal drug prices at the retail seller and user levels. Regression results overwhelmingly reject a multiplicative model in which the ratio of prices at the two levels is constant, but strongly support an additive model in which the difference between these prices is constant. This finding reduces the attractiveness of policies aimed at raising wholesale prices, because retail price responses, and thus potential drug demand deterrence, would be substantially smaller than commonly assumed.

JEL Classification: D40, I18, K42

Suggested Citation

DeSimone, Jeffrey S., The Relationship between Illegal Drug Prices at the Retail User and Seller Levels. Contemporary Economic Policy, Vol. 24, No. 1, pp. 64-73, 2006. Available at SSRN: https://ssrn.com/abstract=904941

Jeffrey S. DeSimone (Contact Author)

University of Texas at Arlington - College of Business Administration - Department of Economics ( email )

Box 19479 UTA
Arlington, TX 76019
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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