Illicit Drug Use Among Arrestees and Drug Prices

Dhaval Dave

NBER Working Paper No. 10648
Issued in July 2004
NBER Program(s):   HE

Previous studies, by relying on nationally representative surveys, have overlooked the important fact that use of addictive substances is not uniformly distributed; subgroups of hardcore users account for most of the drug consumption. This study employs the Drug Use Forecasting system to analyze the demand for cocaine and heroin by arrestees, employing objective indicators of use based on urinalysis. The data are repeated city cross-sections, and panel data methodologies are employed to control for policy endogeneity. Cocaine and heroin prices have a negative effect on the probability of use even among this group of heavy users. Results indicate that subjective, self-reported measures of participation are likely to be under-reported impart bias to estimates of the price elasticity. The own-price cocaine participation elasticity is about 0.17, and the own-price heroin participation elasticity is about 0.09 for arrestees. This contemporaneous elasticity understates the full effect, and the long-run price elasticity is about twice the magnitude. Estimated cross-price elasticities indicate that cocaine and heroin are economic complements. While these findings show that higher penalties, enforcement, and supply reduction activities can discourage participation by heavy users, the elasticities are smaller in magnitude relative to the estimates in the prior literature.

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Published: Dave, Dhaval, 2008. "Illicit drug use among arrestees, prices and policy," Journal of Urban Economics, Elsevier, vol. 63(2), pages 694-714, March.

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