purchase ijt took place in the Virginia suburbs of Washington, D.C., and 0 otherwise. MDijt=1 if purchase ijt took place in the Maryland suburbs and 0 otherwise. Only the DEA makes purchases in the Virginia and Maryland suburbs, so VAijt and MDijt are included only if j=DEA. Uijt is an unobserved random variable whose median is zero, and the ß’s are coefficients that are allowed to be different in different years and in the models for DEA and MPDC purchases.

In equation (A.3), the dependence of logP on logQ has the form of a linear spline with a knot at log Q=–1.25. This specification is used because plots of log P vs. log Q or the MPDC data have kinks in the vicinity of log Q=–1.25. Plots of logP vs. logQ for the DEA data do not show kinks, but the spline specification is used for the DEA model to facilitate comparisons with the MPDC model.

Table A.2 shows summary statistics for the DEA and MPDC cocaine base data. It is clear that the DEA is oriented toward larger purchases than is the MPDC. The distributions of the amounts purchased by the DEA and MPDC overlap, however. In particular, both datasets contain purchases of quantities that are below and quantities that are above one gram. Moreover, estimating (A.3) by using only observations for which Q =10 gm does not change the conclusion of this section, which is that that prices estimated from the MPDC and DEA data are systematically different from one another.

The results of estimating (A.3) are shown in Figure A.6. The figure shows the estimated median prices of 0.8 gm of 65 percent pure cocaine base that are obtained using the DEA and MPDC data. The two sets of estimates are very different. The prices estimated from the DEA data exceed those estimated from the MPDC data by 19 percent to 155 percent, depending on the year. Moreover, the DEA and MPDC data produce different estimates of price changes over time. Between 1991 and 1993, the

TABLE A.2 Summary Statistics for Cocaine Base Purchases

Agency

Variable

Median

Mean

Metropolitan Police of the District of Columbia

Cost ($)

20

126

Quantity (gm)

0.16

2.5

% of purchases of 5 gm or less

90

 

Purity (%)

81

77

Drug Enforcement Agency

Cost ($)

1,000

1,369

Quantity (gm)

21

36

% of purchases of 5 gm or less

30

 

Purity (%)

69

67



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