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Globalization and the Price Decline of Illicit Drugs

Author

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  • Cláudia Costa Storti
  • Paul De Grauwe

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.

Suggested Citation

  • Cláudia Costa Storti & Paul De Grauwe, 2007. "Globalization and the Price Decline of Illicit Drugs," CESifo Working Paper Series 1990, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_1990
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp1990.pdf
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    References listed on IDEAS

    as
    1. Dave, Dhaval, 2006. "The effects of cocaine and heroin price on drug-related emergency department visits," Journal of Health Economics, Elsevier, vol. 25(2), pages 311-333, March.
    2. Saffer, Henry & Chaloupka, Frank, 1999. "The Demand for Illicit Drugs," Economic Inquiry, Western Economic Association International, vol. 37(3), pages 401-411, July.
    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. Michael Grossman, 2004. "Individual Behaviors and Substance Use: The Role of Price," NBER Working Papers 10948, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Daniel Mejía, 2008. "The War on Illegal Drugs in Producer and Consumer Countries: A Simple Analytical Framework," CESifo Working Paper Series 2459, CESifo Group Munich.
    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. 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.

    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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