A Structural Model of the Retail Market for Illicit Drugs. / Galenianos, Emmanouil; Gavazza, Alessandro.

In: American Economic Review, Vol. 107, No. 3, 03.2017, p. 858-896.

Research output: Contribution to journalArticlepeer-review

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A Structural Model of the Retail Market for Illicit Drugs. / Galenianos, Emmanouil; Gavazza, Alessandro.

In: American Economic Review, Vol. 107, No. 3, 03.2017, p. 858-896.

Research output: Contribution to journalArticlepeer-review

Harvard

Galenianos, E & Gavazza, A 2017, 'A Structural Model of the Retail Market for Illicit Drugs', American Economic Review, vol. 107, no. 3, pp. 858-896. https://doi.org/10.1257/aer.20150540

APA

Vancouver

Author

Galenianos, Emmanouil ; Gavazza, Alessandro. / A Structural Model of the Retail Market for Illicit Drugs. In: American Economic Review. 2017 ; Vol. 107, No. 3. pp. 858-896.

BibTeX

@article{e0238b18c7ea43f990482080eeb0d07e,
title = "A Structural Model of the Retail Market for Illicit Drugs",
abstract = "We estimate a model of illicit drugs markets using data on purchases of crack cocaine. Buyers are searching for high-quality drugs, but they determine drugs' quality (i.e., their purity) only after consuming them. Hence, sellers can rip off first-time buyers or can offer higher-quality drugs to induce buyers to purchase from them again. In equilibrium, a distribution of qualities persists. The estimated model implies that if drugs were legalized, in which case purity could be regulated and hence observable, the average purity of drugs would increase by approximately 20 percent and the dispersion would decrease by approximately 80 percent. Moreover, increasing penalties may raise the purity and affordability of the drugs traded by increasing sellers' relative profitability of targeting loyal buyers versus first-time buyers.",
author = "Emmanouil Galenianos and Alessandro Gavazza",
year = "2017",
month = mar,
doi = "10.1257/aer.20150540",
language = "English",
volume = "107",
pages = "858--896",
journal = "American Economic Review",
issn = "0002-8282",
publisher = "American Economic Association",
number = "3",

}

RIS

TY - JOUR

T1 - A Structural Model of the Retail Market for Illicit Drugs

AU - Galenianos, Emmanouil

AU - Gavazza, Alessandro

PY - 2017/3

Y1 - 2017/3

N2 - We estimate a model of illicit drugs markets using data on purchases of crack cocaine. Buyers are searching for high-quality drugs, but they determine drugs' quality (i.e., their purity) only after consuming them. Hence, sellers can rip off first-time buyers or can offer higher-quality drugs to induce buyers to purchase from them again. In equilibrium, a distribution of qualities persists. The estimated model implies that if drugs were legalized, in which case purity could be regulated and hence observable, the average purity of drugs would increase by approximately 20 percent and the dispersion would decrease by approximately 80 percent. Moreover, increasing penalties may raise the purity and affordability of the drugs traded by increasing sellers' relative profitability of targeting loyal buyers versus first-time buyers.

AB - We estimate a model of illicit drugs markets using data on purchases of crack cocaine. Buyers are searching for high-quality drugs, but they determine drugs' quality (i.e., their purity) only after consuming them. Hence, sellers can rip off first-time buyers or can offer higher-quality drugs to induce buyers to purchase from them again. In equilibrium, a distribution of qualities persists. The estimated model implies that if drugs were legalized, in which case purity could be regulated and hence observable, the average purity of drugs would increase by approximately 20 percent and the dispersion would decrease by approximately 80 percent. Moreover, increasing penalties may raise the purity and affordability of the drugs traded by increasing sellers' relative profitability of targeting loyal buyers versus first-time buyers.

U2 - 10.1257/aer.20150540

DO - 10.1257/aer.20150540

M3 - Article

VL - 107

SP - 858

EP - 896

JO - American Economic Review

JF - American Economic Review

SN - 0002-8282

IS - 3

ER -