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Optimal Drug Policy in Low-Income Neighborhoods


  • Sheng-Wen Chang
  • N. Edward Coulson
  • Ping Wang


Part of the debate over the control of drug activity in cities is concerned with the effectiveness of implementing demand- versus supply-side drug policies. This paper is motivated by the relative lack of research providing formal economic underpinning for the implementation of either policy. We construct a simple model of drug activity, in which the drug price and the distribution of population in a community are determined according to a career choice rule and a predetermined drug demand. Three potential government objectives are considered. We find that both demand- and supply-side policies have theoretical support under different community conditions. While the demand-side policy discourages active drug sellers, the supply-side policy has an additional drug-dealing replacement effect on inducing potential entry of drug dealers. In low-income neighborhoods, demand-side policy is more effective if the drug problem is more sever or if the government objective is to deter dealer entry or to promote community's aggregate income rather than minimizing active drug selling.

Suggested Citation

  • Sheng-Wen Chang & N. Edward Coulson & Ping Wang, 2002. "Optimal Drug Policy in Low-Income Neighborhoods," NBER Working Papers 9248, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:9248
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    References listed on IDEAS

    1. Edward L. Glaeser & Bruce Sacerdote & José A. Scheinkman, 1996. "Crime and Social Interactions," The Quarterly Journal of Economics, Oxford University Press, vol. 111(2), pages 507-548.
    2. Frank J. Chaloupka & Michael Grossman & John A. Tauras, 1999. "The Demand for Cocaine and Marijuana by Youth," NBER Chapters,in: The Economic Analysis of Substance Use and Abuse: An Integration of Econometrics and Behavioral Economic Research, pages 133-156 National Bureau of Economic Research, Inc.
    3. Helsley, Robert W. & Strange, William C., 2005. "Mixed markets and crime," Journal of Public Economics, Elsevier, vol. 89(7), pages 1251-1275, July.
    4. Peter A. Diamond, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Oxford University Press, vol. 49(2), pages 217-227.
    5. Freeman, Scott & Grogger, Jeffrey & Sonstelie, Jon, 1996. "The Spatial Concentration of Crime," Journal of Urban Economics, Elsevier, vol. 40(2), pages 216-231, September.
    6. Derek Laing & Theodore Palivos & Ping Wang, 1995. "Learning, Matching and Growth," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 115-129.
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    Cited by:

    1. Sylvaine Poret, 2006. "L'impact des politiques répressives sur l'offre de drogues illicites. Une revue de la littérature théorique," Revue économique, Presses de Sciences-Po, vol. 57(5), pages 1065-1091.
    2. Yunker, James A., 2012. "Estimated optimal drug law enforcement expenditures based on U.S. annual data," Journal of Policy Modeling, Elsevier, vol. 34(3), pages 356-371.

    More about this item

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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