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Globalization and the Price Decline of Illicit Drugs

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  • Cláudia Costa Storti
  • Paul De Grauwe
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    Abstract

    Retail prices of major drugs like cocaine and heroin have declined dramatically during the last two decades. This price decline has tended to offset the effects of drug policies aimed at reducing drug use in major industrial countries. The main finding of this paper is that the decline in the retail prices of drugs is related to the strong decline in the intermediation margin (the difference between the retail and producer prices) in the drug business. We develop the hypothesis, and give some evidence, that globalization has been an important factor behind the decline of the intermediation margin. We conclude with some thoughts about the effects of globalization on the effectiveness of drug policies and argue that globalization may have increased the relative effectiveness of policies aiming at reducing the demand of drugs.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2007/wp-cesifo-2007-05/cesifo1_wp1990.pdf
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    Bibliographic Info

    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1990.

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    Date of creation: 2007
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    Handle: RePEc:ces:ceswps:_1990

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    1. Saffer, Henry & Chaloupka, Frank, 1999. "The Demand for Illicit Drugs," Economic Inquiry, Western Economic Association International, vol. 37(3), pages 401-11, July.
    2. Michael Grossman, 2004. "Individual Behaviors and Substance Use: The Role of Price," NBER Working Papers 10948, National Bureau of Economic Research, Inc.
    3. Gary S. Becker & Kevin M. Murphy & Michael Grossman, 2004. "The Economic Theory of Illegal Goods: The Case of Drugs," NBER Working Papers 10976, National Bureau of Economic Research, Inc.
    4. Dhaval Dave, 2004. "The Effects of Cocaine and Heroin Prices on Drug-Related Emergency Department Visits," NBER Working Papers 10619, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Carlos Casacuberta & Mariana Gerstenblüth & Patricia Triunfo, 2012. "Aportes del análisis económico al estudio de las drogas," Documentos de Trabajo (working papers) 0112, Department of Economics - dECON.
    2. Ali Unlu & Alican Kapti, 2012. "Failed alternative development programs: an implementation analysis of coca supply-reduction programs in Bolivia," International Journal of Public Policy, Inderscience Enterprises Ltd, vol. 8(1/2/3), pages 160-179.
    3. Daniel Mejia & Pascual Restrepo, 2011. "The War on Illegal Drugs in Producer and Consumer Countries: A simple analytical framework," DOCUMENTOS CEDE 007960, UNIVERSIDAD DE LOS ANDES-CEDE.

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