The Demand for Illicit Drugs
NBER Working Paper No. 5238
The purpose of this paper is to estimate the effects of heroin prices, cocaine prices and marijuana decriminalization on the demand for these three drugs, respectively. There are few prior empirical studies in this area because data have been difficult to acquire. This paper makes use of newly available data on drug prices and is the first to link these data to a sample of 49,802 individuals from the National Household Survey of Drug Abuse. The new drug price data comes from the Drug Enforcement Agency. The results provide empirical evidence that drug use is more price responsive than has been previously thought. The results show that the participation price elasticity for heroin is about -.90 to -.80 and that the participation price elasticity for cocaine is about - .55 to -.36. Marijuana decriminalization was also found to increase the probability of marijuana participation by about 4 to 6 percent. The price elasticity for heroin is estimated at about -1.80 to -1.60 and for cocaine at about -1.10 to -.72. It is estimated that legalization would lead to about a 100 percent increase in the quantity of heroin consumed and about a 50 percent increase in the quantity of cocaine consumed.
Published: Economic Inquiry, Vol. 37, no. 3 (July 1999): pp. 401-411.