Optimal Drug Policy in Low-Income Neighborhoods

Part of the debate over the control of drug activity in cities is concerned with the effectiveness of implementing demand- versus supply-side drug policies. This paper is motivated by the relative lack of research providing formal economic underpinning for the implementation of either policy. We construct a simple model of drug activity, in which the drug price and the distribution of population in a community are determined according to a career choice rule and a predetermined drug demand. Three potential government objectives are considered. We find that both demand- and supply-side policies have theoretical support under different community conditions. While the demand-side policy discourages active drug sellers, the supply-side policy has an additional drug-dealing replacement effect on inducing potential entry of drug dealers. In low-income neighborhoods, demand-side policy is more effective if the drug problem is more sever or if the government objective is to deter dealer entry or to promote community's aggregate income rather than minimizing active drug selling.