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A Search-Theoretic Model of the Retail Market for Illicit Drugs

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  • Manolis Galenianos
  • Rosalie Liccardo Pacula
  • Nicola Persico

Abstract

A search-theoretic model of the retail market for illegal drugs is developed. Trade occurs in bilateral, potentially long-lived matches between sellers and buyers. Buyers incur search costs when experimenting with a new seller. Moral hazard is present because buyers learn purity only after a trade is made. This model is consistent with some new stylized facts about the drugs market, and it is informative for policy design. The effectiveness of different enforcement strategies is evaluated, including some novel ones that leverage the moral hazard present in the market. Copyright , Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/restud/rds007
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Bibliographic Info

Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 79 (2012)
Issue (Month): 3 ()
Pages: 1239-1269

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Handle: RePEc:oup:restud:v:79:y:2012:i:3:p:1239-1269

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  1. Trejos, Alberto, 1999. "Search, Bargaining, Money, and Prices under Private Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 679-95, August.
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  5. Bryan Engelhardt & Guillaume Rocheteau & Peter Rupert, 2007. "Crime and the labor market: a search model with optimal contracts," Working Paper, Federal Reserve Bank of Cleveland 0715, Federal Reserve Bank of Cleveland.
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  7. Schelling, Thomas C, 1984. "Self-Command in Practice, in Policy, and in a Theory of Rational Choice," American Economic Review, American Economic Association, American Economic Association, vol. 74(2), pages 1-11, May.
  8. Chien-Chieh Huang & Derek Laing & Ping Wang, 2004. "Crime And Poverty: A Search-Theoretic Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(3), pages 909-938, 08.
  9. Steve Williamson & Randall Wright, 1991. "Barter and monetary exchange under private information," Staff Report, Federal Reserve Bank of Minneapolis 141, Federal Reserve Bank of Minneapolis.
  10. Michael Grossman & Frank J. Chaloupka & Charles C. Brown, 1996. "The Demand for Cocaine by Young Adults: A Rational Addiction Approach," NBER Working Papers 5713, National Bureau of Economic Research, Inc.
  11. Caulkins Jonathan P & Reuter Peter & Taylor Lowell J, 2006. "Can Supply Restrictions Lower Price? Violence, Drug Dealing and Positional Advantage," The B.E. Journal of Economic Analysis & Policy, De Gruyter, De Gruyter, vol. 5(1), pages 1-20, January.
  12. Stigler, George J & Becker, Gary S, 1977. "De Gustibus Non Est Disputandum," American Economic Review, American Economic Association, American Economic Association, vol. 67(2), pages 76-90, March.
  13. Gary S. Becker & Kevin M. Murphy & Michael Grossman, 2006. "The Market for Illegal Goods: The Case of Drugs," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 114(1), pages 38-60, February.
  14. Melvyn G. Coles, 2001. "Equilibrium Wage Dispersion, Firm Size and Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(1), pages 159-187, January.
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Cited by:
  1. Adda, Jerome & McConnell, Brendon & Rasul, Imran, 2014. "Crime and the Depenalization of Cannabis Possession: Evidence from a Policing Experiment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9914, C.E.P.R. Discussion Papers.
  2. Ben Lakhdar, Christian & Leleu, Hervé & Vaillant, Nicolas Gérard & Wolff, François-Charles, 2013. "Efficiency of purchasing and selling agents in markets with quality uncertainty: The case of illicit drug transactions," European Journal of Operational Research, Elsevier, Elsevier, vol. 226(3), pages 646-657.
  3. Greg Kaplan & Guido Menzio, 2014. "The Morphology of Price Dispersion," PIER Working Paper Archive, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania 14-002, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  4. O'Flaherty, Brendan & Sethi, Rajiv, 2010. "The racial geography of street vice," Journal of Urban Economics, Elsevier, vol. 67(3), pages 270-286, May.
  5. Carlos Casacuberta & Mariana Gerstenblüth & Patricia Triunfo, 2012. "Aportes del análisis económico al estudio de las drogas," Documentos de Trabajo (working papers), Department of Economics - dECON 0112, Department of Economics - dECON.
  6. Liana Jacobi & Michelle Sovinsky, 2012. "Marijuana on main street: What if?," ECON - Working Papers, Department of Economics - University of Zurich 087, Department of Economics - University of Zurich.

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