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Informing America’s Policy on Illegal Drugs: What We Don’t Know Keeps Hurting Us
the availability of legitimate employment opportunities? For example, to what extent do increases in legitimate employment opportunities or wages for unskilled labor draw individuals away from drug dealing?
Interest in such questions is not restricted to markets for illegal drugs. Similar questions are routinely asked and answered in economic analyses of markets for legitimate products and labor markets. Indeed, economists have developed theoretical models and statistical methods for studying retail markets and labor markets. There is little doubt that these models and methods can be adapted for application to markets for illegal drugs. The main obstacle to doing so is lack of the required data. The economic analysis of legal markets uses data on prices, purchase frequencies, quantities bought and sold, employment levels, and wages, among other variables. Reliable data of these kinds on markets for illegal drugs do not exist.
And because they do not exist, current knowledge of these markets is based largely on investigations by ethnographers and journalists. Ethnographic and journalistic research has provided invaluable information about the organization of drug markets, their effects on neighborhoods, and the behavior of market participants. The results of this research provide essential inputs to any economic analyses that may be undertaken in the future, but ethnographic and journalistic research is largely descriptive and case-specific. As a result, it has only a limited ability to provide quantitative answers to questions such as the ones listed above. It is the committee’s view that until data required for economic analyses of retail drug markets become available, policy interventions aimed at influencing these markets will be largely shots in the dark, and estimates of the effectiveness of these interventions will be largely speculative.
We summarize below current knowledge and significant outstanding questions about aspects of retail drug markets that are especially important for policy analysis. The topics discussed are the social organization of retail drug markets, price determination in retail markets, issues of labor supply, and the problem of estimating demand functions and price elasticities of demand for illegal drugs.
Social Organization of Retail Markets
The social organization of retail drug markets has been investigated in ethnographic studies. Curtis and Wendel (1999, 2000) have identified three forms of retail organizations in the New York City area: freelance dealers, corporate-style organizations, and socially bonded organizations. The National Development and Research Institutes (1998) have also docu-