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A Search-Theoretic Model of the Retail Market for Illicit Drugs

Author

Listed:
  • Manolis Galenianos
  • Rosalie Liccardo Pacula
  • Nicola Persico

Abstract

A 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.

Suggested Citation

  • Manolis Galenianos & Rosalie Liccardo Pacula & Nicola Persico, 2009. "A Search-Theoretic Model of the Retail Market for Illicit Drugs," NBER Working Papers 14980, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:14980
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    References listed on IDEAS

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    Cited by:

    1. Jérôme Adda & Brendon McConnell & Imran Rasul, 2014. "Crime and the Depenalization of Cannabis Possession: Evidence from a Policing Experiment," Journal of Political Economy, University of Chicago Press, vol. 122(5), pages 1130-1202.
    2. Greg Kaplan & Guido Menzio & Leena Rudanko & Nicholas Trachter, 2016. "Relative Price Dispersion: Evidence and Theory," NBER Working Papers 21931, National Bureau of Economic Research, Inc.
    3. Ben Lakhdar, Christian & Leleu, Hervé & Vaillant, Nicolas Gérard & Wolff, François-Charles, 2013. "Efficiency of purchasing and selling agents in markets with quality uncertainty: The case of illicit drug transactions," European Journal of Operational Research, Elsevier, vol. 226(3), pages 646-657.
    4. Pacula Rosalie Liccardo & Kilmer Beau & Grossman Michael & Chaloupka Frank J, 2010. "Risks and Prices: The Role of User Sanctions in Marijuana Markets," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-38, February.
    5. 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.
    6. Bhaskar, V. & Linacre, Robin & Machin, Stephen, 2017. "The economic functioning of online drugs markets," LSE Research Online Documents on Economics 86585, London School of Economics and Political Science, LSE Library.
    7. Manolis Galenianos & Alessandro Gavazza, 2014. "A quantitative analysis of the retail market for illicit drugs," 2014 Meeting Papers 618, Society for Economic Dynamics.
    8. Olmstead, Todd A. & Alessi, Sheila M. & Kline, Brendan & Pacula, Rosalie Liccardo & Petry, Nancy M., 2015. "The price elasticity of demand for heroin: Matched longitudinal and experimental evidence," Journal of Health Economics, Elsevier, vol. 41(C), pages 59-71.
    9. Rose, Christiern, 2016. "The War on Drugs: An Analysis of the Effects of Supply Disruption on Prices and Purity," TSE Working Papers 16-643, Toulouse School of Economics (TSE).
    10. David Powell & Rosalie Liccardo Pacula & Erin Audrey Taylor, 2016. "How Increasing Medical Access to Opioids Contributes to the Opioid Epidemic Evidence from Medicare Part D," Working Papers WR-1169, RAND Corporation.
    11. Greg Kaplan & Guido Menzio, 2015. "The Morphology Of Price Dispersion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56, pages 1165-1206, November.
    12. Decreuse, Bruno & Mongrain, Steve & van Ypersele, Tanguy, 2015. "Property crime and private protection allocation within cities: theory and evidence," CEPR Discussion Papers 10707, C.E.P.R. Discussion Papers.
    13. Liana Jacobi & Michelle Sovinsky, 2012. "Marijuana on main street: What if?," ECON - Working Papers 087, Department of Economics - University of Zurich.
    14. O'Flaherty, Brendan & Sethi, Rajiv, 2010. "The racial geography of street vice," Journal of Urban Economics, Elsevier, vol. 67(3), pages 270-286, May.
    15. Leong, Kaiwen & Li, Huailu & Xu, Haibo, 2018. "Exploiting the Unbanked: Evidence from Singapore's Unlicensed Moneylending Market," IZA Discussion Papers 11786, Institute for the Study of Labor (IZA).

    More about this item

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - 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

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