TY  - JOUR
AU  - Galenianos,Manolis
AU  - Pacula,Rosalie Liccardo
AU  - Persico,Nicola
TI  - A Search-Theoretic Model of the Retail Market for Illicit Drugs
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14980
PY  - 2009
Y2  - May 2009
UR  - http://www.nber.org/papers/w14980
L1  - http://www.nber.org/papers/w14980.pdf
N1  - Author contact info:
Manolis Galenianos
Pennsylvania State University
522 Kern Graduate Building
State College
PA 16802
Tel: 814-865-0010
Fax: 814-863-4775
E-Mail: manolis@psu.edu

Rosalie Liccardo Pacula
RAND Corporation
1776 Main Street
P.O. Box 2138
Santa Monica, CA 90407-2138
Tel: 310/393-0411 ext. 6494
Fax: 858/350-8798
E-Mail: pacula@rand.org

Nicola Persico
Kellogg School of Business
room 542 Jacobs Center
2001 Sheridan Road
Evanston, IL 60208
Tel: (847)467-1796
E-Mail: nicola@nicolapersico.com
AB  - A search-theoretic model of the retail market for illegal drugs is developed. Trade occurs in bilateral, potentially long-lived matches between sellers and buyers. Buyers incur search costs when experimenting with a new seller. Moral hazard is present because buyers learn purity only after a trade is made. The model produces testable implications regarding the distribution of purity offered in equilibrium, and the duration of the relationships between buyers and sellers. These predictions are consistent with available data. The effectiveness of different enforcement strategies is evaluated, including some novel ones which leverage the moral hazard present in the market.
ER  -