10.3886/ICPSR06567.v1
Caulkins, Jonathan P.
Estimating the Elasticities of Demand for Cocaine and Heroin with Data from 21 Cities from the Drug Use Forecasting (DUF) Program, 1987-1991
Inter-university Consortium for Political and Social Research
1997
ADAM/DUF Program
alcohol abuse
cocaine
consumption
criminal histories
crime patterns
demographic characteristics
drug dependence
drug law offenses
drug offenders
drug related crimes
drug testing
drug traffic
drug use
gun use
handguns
heroin
price fluctuations
recidivism prediction
substance abuse
trends
urinalysis
1997-02-24
2006-03-30
1987--1991
survey data and event/transaction data
6567
1
The objective of this research was to estimate the
elasticity of the demand for cocaine and heroin with respect to the
price. Price elasticity is the percentage of change in the dependent
quantity corresponding to a one-percent change in price. The project
involved the development of an econometric model to determine price
elasticity, given that national- and city-level data on the
consumption of cocaine and heroin are insufficient or nonexistent. The
researchers circumvented this lack of data by partitioning the desired
elasticity into the product of two elasticities, involving a
measurable intermediate quantity whose relationship to the quantity of
consumption could be modeled and estimated by measurable
techniques. The intermediate quantity used for this project was the
fraction of arrestees testing positive for cocaine or heroin as
measured by the Drug Use Forecasting (DUF) System. From the Drug
Enforcement Administration's (DEA's) System to Retrieve Information
from Drug Evidence (STRIDE) data, expected purity was computed by
regressing on log quantity and dummy variables for location and
quarter. Price series were produced by finding the median standardized
price per expected pure gram for each location and quarter. Variables
for Part 1, National Data, include year, quarter, standardized prices
for a gram of cocaine and a gram of heroin, and expected purity of
cocaine and heroin. The Cities Data, Part 2, cover city, year,
quarter, number of observations used to compute the median price of
cocaine and heroin, standardized prices, and expected purity.
Over the last decade, illicit drugs have been
increasingly recognized as consumer goods. They are produced,
distributed, and retailed in markets that are not entirely unlike the
markets for licit goods. This research sought to answer questions such
as: (1) By how much will consumption change if prices increase? and
(2) If the price of one drug goes up, will users switch to another
drug? The answers to these questions have significant policy
implications. The primary objective of drug enforcement is to reduce
consumption and increase price, using interdiction and source country
control. However, the final step of translating the projected increase
in price into a reduction in consumption is never satisfactory,
because the elasticity of demand is not known. Better knowledge of the
extent of substitution would also aid policy planning, analysis, and
evaluation. Furthermore, interventions designed to affect price could
consider how the difference in the higher fraction of disposable
income absorbed by drug purchases for women and youth affect
demand. Therefore, the objective of this research was to estimate the
elasticity of the quantity of cocaine and heroin consumed with respect
to the price.
In general, price elasticity is the percentage of
change in the dependent quantity corresponding to a one-percent change
in price. The focus of this research was the development of an
econometric model to determine price elasticity corresponding to the
percentage of change in the quantity of cocaine and heroin consumed to
the change in the price of cocaine and heroin. The use of the standard
econometric model was not feasible, given that national- and
city-level data on consumption of cocaine and heroin are insufficient
or nonexistent. The researchers adapted the model by partitioning the
desired elasticity into the product of two elasticities, involving a
measurable intermediate quantity whose relationship to the quantity of
consumption could be modeled and estimated by measurable
techniques. The intermediate quantity used for this project was the
fraction of arrestees testing positive for cocaine or heroin as
measured by the Drug Use Forecasting System. From the STRIDE data,
cocaine and heroin purchase records were used if (1) they had a
positive purity, (2) the amount paid was greater than one dollar, and
(3) the total weight was between 0.05 and 40 grams. To partially
offset the situations in which cities' records were inadequate to
produce reliable quarterly price estimates, data were augmented with
records from adjoining cities. Gross outliers were eliminated with a
coarse filter based on price per gram, ignoring purity. A second step
eliminated observations whose standard price was more than five times
farther from the median standardized price for its location and
quarter than the median distance. Expected purity was then computed by
regressing on log quantity and dummy variables for location and
quarter. Price series were produced by finding the median standardized
price per expected pure gram of the remaining records for each
location and quarter, provided at least five such records existed. If
fewer than five records existed, the price was recorded as missing.
Variables for Part 1, National Data, include year,
quarter, standardized prices for a gram of cocaine and a gram of
heroin, and expected purity of cocaine and heroin. The Cities Data,
Part 2, cover city, year, quarter, number of observations used to
compute the median price of cocaine and heroin, standardized prices,
and expected purity.