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Efficiency of purchasing and selling agents in markets with quality uncertainty: The case of illicit drug transactions

Author

Listed:
  • Christian Ben Lakhdar

    (LEM (UMR 8179 CNRS) and Université Catholique de Lille (FLSEG))

  • Hervé Leleu

    () (CNRS-LEM (UMR 8179), IESEG School of Management)

  • Nicolas Gérard Vaillant

    (LEM (UMR 8179 CNRS) and Université Catholique de Lille (FLSEG))

  • François-Charles Wolff

    (LEMNA, Université de Nantes)

Abstract

Since Akerlof’s theory of lemons, economists have viewed quality uncertainty as an informational advantage for sellers. Drawing on frontier techniques, we propose in this paper a simple method for measuring inefficiency of both sellers and buyers in markets for goods with different levels of quality. We apply a non-parametric robust double-frontier framework to the case of illicit substance markets, which suffer from imperfect information about drug quality for purchasers and to a lesser extent for sellers. We use unique data on cannabis and cocaine transactions collected in France that include information about price, quantity exchanged and purity. We find that transactional inefficiency does not really benefit either dealers or purchasers. Furthermore, information influences the performance of agents during market transactions.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Christian Ben Lakhdar & Hervé Leleu & Nicolas Gérard Vaillant & François-Charles Wolff, 2011. "Efficiency of purchasing and selling agents in markets with quality uncertainty: The case of illicit drug transactions," Working Papers 2011-ECO-02, IESEG School of Management.
  • Handle: RePEc:ies:wpaper:e201102
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    References listed on IDEAS

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    Cited by:

    1. Wolff, François-Charles, 2014. "Lift ticket prices and quality in French ski resorts: Insights from a non-parametric analysis," European Journal of Operational Research, Elsevier, vol. 237(3), pages 1155-1164.

    More about this item

    Keywords

    illicit drug markets; quality uncertainty; efficient transactions;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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