To summarize, basic economic thinking combined with comparisons of the prices of illegal drugs to pharmaceutical drug prices and to prices of legal agricultural commodities have led to the consensus view that illegal drug prices are raised by the existing prohibition policy. Thus, enforcement of prohibition through interdiction and domestic enforcement do appear to affect the market. However, the marginal effect of enforcement spending remains uncertain. As Caulkins and Reuter (1998:603) state, “it is not clear how much enforcement is ‘enough’ to keep prices high.” Nor is it known which specific enforcement measures contribute to price increases, which do not, and by how much specific effective measures increase prices.
Economists have long developed highly sophisticated systems models to explain markets for goods and services. Systems research, which consists of formal efforts to model behavior of actors or agents in a social system, was used to evaluate supply-reduction policy in the RAND study (Rydell and Everingham, 1994) assessed in the committee’s Phase I report, as well as in several other recent analyses. A Simulation of Adaptive Response (SOAR) model was developed by Caulkins et al. (1993) to simulate the effects of enforcement activities on the route and mode choices of smugglers. Economic models of the cocaine trade have been developed by Kennedy et al. (1993) and Riley (1993) and used to simulate the impacts of voluntary crop substitution programs and forced crop eradication, among other enforcement activities.
Even in the absence of empirical analysis, systems research can play a useful role in evaluating supply-reduction policy. Thoughtful development of formal behavioral models encourages coherent thinking about the technology of drug production, transport, and distribution. It forces one to make explicit judgments about the manner in which enforcement activities may affect the behavior of producers and traffickers. Simulation exercises can show how assumptions translate into predictions of policy impacts. The performance of sensitivity analyses can clarify the critical empirical questions that must be answered to credibly predict the consequences of enforcement policy.
Systems research can do much more to inform supply-reduction policy if a model’s assumptions and parameter values have firm foundations. The central requirement is empirical research illuminating how drug production, transport, and distribution respond to interdiction and domestic enforcement activities. In the absence of empirical research, analysts can argue endlessly about the realism of any systems model that