A Search-Theoretic Model of the Retail Market for Illicit Drugs
AbstractA 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. The model produces testable implications regarding the distribution of purity offered in equilibrium, and the duration of the relationships between buyers and sellers. These predictions are consistent with available data. The effectiveness of different enforcement strategies is evaluated, including some novel ones which leverage the moral hazard present in the market.
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Date of creation: May 2009
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- Manolis Galenianos & Rosalie Liccardo Pacula & Nicola Persico, 2012. "A Search-Theoretic Model of the Retail Market for Illicit Drugs," Review of Economic Studies, Oxford University Press, vol. 79(3), pages 1239-1269.
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
- K14 - Law and Economics - - Basic Areas of Law - - - Criminal Law
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-05-23 (All new papers)
- NEP-CTA-2009-05-23 (Contract Theory & Applications)
- NEP-DGE-2009-05-23 (Dynamic General Equilibrium)
- NEP-HEA-2009-05-23 (Health Economics)
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