Hopping on the Methadone Bus
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.
|Date of creation:||16 Jan 2009|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
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- Harry Clarke, 2003. "Economic Analysis of Public Policies for Controlling Heroin Use," Australian Economic Papers, Wiley Blackwell, vol. 42(2), pages 234-252, 06.
- Richard Stevenson, 1994. "Harm Reduction, Rational Addiction, And The Optimal Prescribing Of Illegal Drugs," Contemporary Economic Policy, Western Economic Association International, vol. 12(3), pages 101-108, 07.
- Bruno S. Frey, 1997. "Drugs: Drugs, economics and policy," Economic Policy, CEPR;CES;MSH, vol. 12(25), pages 387-398, October.
- Partha Dasgupta & Eric Maskin, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, II: Applications," Review of Economic Studies, Oxford University Press, vol. 53(1), pages 27-41.
- Becker, Gary S & Murphy, Kevin M, 1988. "A Theory of Rational Addiction," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 675-700, August.
- Gary S. Becker & Kevin M. Murphy, 1986. "A Theory of Rational Addiction," University of Chicago - George G. Stigler Center for Study of Economy and State 41, Chicago - Center for Study of Economy and State.
- Robert W. Rosenthal & Andrew Weiss, 1984. "Mixed-Strategy Equilibrium in a Market with Asymmetric Information," Review of Economic Studies, Oxford University Press, vol. 51(2), pages 333-342. Full references (including those not matched with items on IDEAS)
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