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Hopping on the methadone bus

  • Lippert, Steffen
  • Schumacher, Christoph

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.

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Article provided by Elsevier in its journal Journal of Health Economics.

Volume (Year): 28 (2009)
Issue (Month): 3 (May)
Pages: 728-736

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Handle: RePEc:eee:jhecon:v:28:y:2009:i:3:p:728-736
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  1. Gary S. Becker & Kevin M. Murphy, 1986. "A Theory of Rational Addiction," University of Chicago - George G. Stigler Center for Study of Economy and State 41, Chicago - Center for Study of Economy and State.
  2. Ziggy MacDonald, . "What Price Drug Use? The Contribution of Economics to an Evidence-Based Drugs Policy," Discussion Papers in Public Sector Economics 01/6, Department of Economics, University of Leicester.
  3. Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, II: Applications," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 27-41, January.
  4. Harry Clarke, 2003. "Economic Analysis of Public Policies for Controlling Heroin Use," Australian Economic Papers, Wiley Blackwell, vol. 42(2), pages 234-252, 06.
  5. Rosenthal, Robert W & Weiss, Andrew, 1984. "Mixed-Strategy Equilibrium in a Market with Asymmetric Information," Review of Economic Studies, Wiley Blackwell, vol. 51(2), pages 333-42, April.
  6. Marnik G. Dekimpe & Linda M. Van de Gucht & Dominique M. Hanssens & Keiko I. Powers, 1998. "Long-Run Abstinence After Narcotics Abuse: What Are the Odds?," Management Science, INFORMS, vol. 44(11-Part-1), pages 1478-1492, November.
  7. Bruno S. Frey, 1997. "Drugs: Drugs, economics and policy," Economic Policy, CEPR;CES;MSH, vol. 12(25), pages 387-398, October.
  8. Staines, Graham L. & Blankertz, Laura & Magura, Stephen & Cleland, Charles M. & Bali, Priti, 2005. "Evaluating vocational rehabilitation programs for substance users: issues in designing and implementing randomized studies," Evaluation and Program Planning, Elsevier, vol. 28(1), pages 61-68.
  9. Donohue, John J, III & Levitt, Steven D, 1998. "Guns, Violence, and the Efficiency of Illegal Markets," American Economic Review, American Economic Association, vol. 88(2), pages 463-67, May.
  10. Henry Saffer & Frank Chaloupka, 1995. "The Demand for Illicit Drugs," NBER Working Papers 5238, National Bureau of Economic Research, Inc.
  11. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  12. Richard Stevenson, 1994. "Harm Reduction, Rational Addiction, And The Optimal Prescribing Of Illegal Drugs," Contemporary Economic Policy, Western Economic Association International, vol. 12(3), pages 101-108, 07.
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