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Hopping on the Methadone Bus

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  • Lippert, Steffen
  • Schumacher, Christoph

Abstract

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.

Suggested Citation

  • Lippert, Steffen & Schumacher, Christoph, 2009. "Hopping on the Methadone Bus," MPRA Paper 13043, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:13043
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    More about this item

    Keywords

    Drugs; Drug Policy; Drug Dealing; Free Drug Programs; Screening;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • I1 - Health, Education, and Welfare - - Health

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