Assessment of Two Cost-Effectiveness Studies on Cocaine Control Policy

Charles F. Manski, John V. Pepper, Yonette F. Thomas, Editors

Committee on Data and Research for Policy on Illegal Drugs

Committee on Law and Justice

Committee on National Statistics

Commission on Behavioral and Social Sciences and Education

National Research Council

NATIONAL ACADEMY PRESS
Washington, DC
1999



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Assessment of Two Cost-Effectiveness Studies on Cocaine Control Policy Charles F. Manski, John V. Pepper, Yonette F. Thomas, Editors Committee on Data and Research for Policy on Illegal Drugs Committee on Law and Justice Committee on National Statistics Commission on Behavioral and Social Sciences and Education National Research Council NATIONAL ACADEMY PRESS Washington, DC 1999

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NATIONAL ACADEMY PRESS 2101 Constitution Avenue, N.W. Washington, DC 20418 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Bruce M. Alberts is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. William A. Wulf is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Kenneth I. Shine is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Bruce M. Alberts and Dr. William A. Wulf are chairman and vice chairman, respectively, of the National Research Council. This study was supported by Contract/Grant No. DC8C01 between the National Academy of Sciences and the Office of National Drug Control Policy of the Executive Office of the President. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the organizations or agencies that provided support for the project. International Standard Book Number 0-309-06477-5 Additional copies of this report are available from National Academy Press, 2101 Constitution Avenue, N.W., Lockbox 285, Washington, DC 20055; (800) 624-6242 or (202) 334-3313 (in the Washington metropolitan area); Internet, http://www.nap.edu Printed in the United States of America Copyright 1999 by the National Academy of Sciences. All rights reserved.

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Committee On Data And Research For Policy On Illegal Drugs CHARLES F. MANSKI (Chair), Department of Economics, Northwestern University ALFRED BLUMSTEIN, H. John Heinz III School of Public Policy and Management, Carnegie Mellon University RICHARD J. BONNIE, School of Law, University of Virginia JEANETTE CONVINGTON, Department of Sociology, Rutgers University DENISE C. GOTTFREDSON, Department of Criminal Justice and Criminology, University of Maryland PHILIP B. HEYMANN, Center for Criminal Justice, Harvard University JOEL L. HOROWITZ, Department of Economics, University of Iowa ROBERT J. MACCOUN, Richard & Rhoda Goldman School of Public Policy, University of California, Berkeley MARK H. MOORE, John F. Kennedy School of Government, Harvard University WILLIAM NORDHAUS, Department of Economics, Yale University ROBERT H. PORTER, Department of Economics, Northwestern University PAUL R. ROSENBAUM, Department of Statistics, University of Pennsylvania JAMES Q. WILSON, Department of Political Science, University of California, Los Angeles DARNELL F. HAWKINS (Liaison, Committee on Law and Justice), African American Studies, University of Illinois at Chicago YONETTE F. THOMAS, Study Director JOHN PEPPER, Consultant KAREN AUTREY, Senior Project Assistant

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Committee On Law And Justice CHARLES WELLFORD (Chair), Center for Applied Policy Studies and Department of Criminology and Criminal Justice, University of Maryland RUTH DAVIS, The Pymatuning Group, Inc., Virginia DARNELL HAWKINS, Department of African American Studies, University of Illinois at Chicago PHILIP HEYMANN, Center for Criminal Justice, Harvard Law School CANDACE KRUTTSCHNITT, Department of Sociology, University of Minnesota MARK LIPSEY, Department of Psychology and Human Development, Vanderbilt University COLIN LOFTIN, School of Criminal Justice, State University of New York at Albany JOHN MONAHAN, School of Law, University of Virginia DANIEL NAGIN, H. John Heinz III School of Public Policy and Management, Carnegie Mellon University JOAN PETERSILIA, School of Social Ecology, University of California, Irvine PETER REUTER, School of Public Affairs, University of Maryland WESLEY SKOGAN, Center for Urban Affairs, Northwestern University CATHY SPATZ WIDOM, Departments of Criminal Justice and Psychology, State University of New York at Albany KATE STITH, School of Law, Yale University MICHAEL TONRY, School of Law, University of Minnesota CAROL PETRIE, Study Director MELISSA BAMBA, Research Associate KAREN AUTREY, Senior Project Assistant

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Committee On National Statistics 1998-1999 JOHN E. ROLPH (Chair), Marshall School of Business, University of Southern California JOSEPH G. ALTONJI, Department of Economics, Northwestern University JULIE DAVANZO, RAND, Santa Monica, California WILLIAM F. EDDY, Department of Statistics, Carnegie Mellon University WILLIAM D. KALSBEEK, Survey Research Unit, Department of Biostatistics, University of North Carolina RODERICK J.A. LITTLE, School of Public Health, University of Michigan THOMAS A. LOUIS, Division of Biostatistics, University of Minnesota CHARLES F. MANSKI, Department of Economics, Northwestern University WILLIAM D. NORDHAUS, Department of Economics, Yale University JANET L. NORWOOD, The Urban Institute, Washington, DC EDWARD B. PERRIN, Department of Health Services, University of Washington PAUL R. ROSENBAUM, Department of Statistics, The Wharton School, University of Pennsylvania FRANCISCO J. SAMANIEGO, Division of Statistics, University of California, Davis RICHARD L. SCHMALENSEE, Sloan School of Management, Massachusetts Institute of Technology MIRON L. STRAF, Director ANDREW A. WHITE, Deputy Director

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Contents     Preface   ix     Executive Summary   1 1   Introduction   3     Background   3     The RAND and IDA Studies   4     This Report   6     The Work Ahead   7 2   The Rand Study   8     Assumptions, Data, Methods, and Findings   8     Modeling the Market for Cocaine: Qualitative Features   8     Modeling the Market for Cocaine: Quantitative Features   11     Cost-Effectiveness Findings of the RAND Study   14     Assessment   15     Estimates of Effects of Drug Treatment Programs on Cocaine Users   15     The TOPS Data   16     Inferential Problems   16

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    Modeling the Supply of Cocaine   19     Shape of the Average Cost Curve   19     Supply-Control Policies and Average Production Costs   22     Seizures as a Measure of Supply-Control Activity   23     Nonprice Effects of Supply-Control Activities   24     Modeling the Demand for Cocaine   24     The Price Elasticity of Demand   24     The Complex Response of Cocaine Consumption to Prices   26     Evaluating the Reliability of the Model   27     Conclusions   27 3   The IDA Study   29     Assumptions, Data, Methods, and Findings   29     A Cocaine Price Series   29     The Price Elasticity of Demand for Cocaine   30     Effect of Interdiction Events on the Price of Cocaine   31     Cost-Effectiveness of Interdiction   31     Assessment   34     The IDA Price Series   35     The STRIDE Data   35     The Street-Price Index   36     Purity as a Measure of Product Quality   38     Sampling Error   38     Selection of Interdiction Events   39     Inferential Problems   39     Attribution of Price Fluctuations to Intervention Events   40     The Exponential Price Path   41     Duration of Price Excursions   42     Conclusions   42     Appendix Cocaine Markets and Supply-Control Activities   45     References   49

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Preface In October of 1997 the Office of National Drug Control Policy (ONDCP) of the Executive Office of the President requested the National Research Council (NRC) to convene a committee to study the data and research needed for national policy on illegal drugs. The Committee on Data and Research for Policy on Illegal Drugs, formed in early 1998 under the aegis of the NRC's Committee on Law and Justice and Committee on National Statistics, was given the charge to: 1.   assess existing data sources and recent research studies that support policy analysis; 2.   identify new data and research that may enable the development of more effective means of evaluating the consequences of alternative drug control policies; and 3.   explore ways to integrate theory and findings from diverse disciplines to increase understanding of drug abuse and the operation of drug markets. The committee began its work in spring 1998 and will, over a 2 1/2-year period, conduct a broad study of data and research to inform drug control policy. The charge to the committee gives it substantial discretion on the conduct of the study. ONDCP did, however, make one specific request: that the committee, early in its work, assess two recent cost-effectiveness studies on cocaine control policy. The two studies—by RAND and the

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Institute for Defense Analyses (IDA)—have starkly different methodologies and conclusions and have drawn considerable attention. In connection with its work, the committee hosted a public Workshop on Cost-Effectiveness Studies in June 1998. At the workshop, authors of the two studies presented their work, responded to questions, and offered their general perspectives. This report presents the committee's review and assessment of the RAND and IDA studies. The immediate purpose of the report is to evaluate the degree to which these two studies effectively inform cocaine control policy. In the longer term, the report sets a context for the committee's future deliberations about the data and research needed to support analysis and development of drug control policy. Many people made generous contributions to the work of the committee. We thank the authors and presenters of the two reports, Susan Everingham, Jonathan Caulkins, Barry Crane, and A. Rex Rivolo, who attended the Workshop on Cost-Effectiveness Studies, answered our many questions, and provided background material. Also, we thank Christopher Sims of the Yale University Department of Economics, Jeffrey Grogger and Mark Kleiman of the University of California, Los Angeles, School of Public Policy and Social Research, Robert Moffit of the Johns Hopkins University Department of Economics, and John Geweke of the University of Minnesota Department of Economics for their theoretical and methodological insights. We also thank Eugenia Grohman, associate director for reports of the Commission on Behavioral and Social Sciences and Education, for her ever-important editorial support and Karen Autrey, our senior project assistant, for her organizational assistance and logistical support. This report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the NRC's Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the institution in making the published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the deliberative process. We thank the following individuals for their participation in the review of this report: David S. Cordray, Institute for Public Policy Studies, Vanderbilt University; Stephen Fienberg, Department of Statistics, Carnegie Mellon University; Arthur S. Goldberger, Department of Economics, University of Wisconsin; Joel B. Greenhouse, Department of Statistics, Carnegie Mellon University; Herbert Kleber, National Center on Addiction and Substance Abuse, Columbia University; Lester B. Lave,

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Graduate School of Industrial Administration, Carnegie Mellon University; Philip R. Lee, Institute for Health Policy Studies, University of California, San Francisco; Colin Loftin, School of Criminal Justice, State University of New York at Albany; Henry W. Riecken, Professor of Behavioral Sciences, University of Pennsylvania School of Medicine (emeritus); and Thomas C. Schelling, School of Public Affairs, University of Maryland. Although the individuals listed above have provided constructive comments and suggestions, it must be emphasized that responsibility for the final content of this report rests entirely with the authoring committee and the institution. Finally, as we begin the major phase of work, on the broad questions of illegal drug policies, we are happy to welcome two new members: James C. Anthony, at the Department of Epidemiology, Johns Hopkins University, School of Medicine, and Charles O'Brien, at the Treatment Research Center, University of Pennsylvania. Their expertise are valuable additions for the committee's continuing work. CHARLES F. MANSKI, CHAIR YONETTE F. THOMAS, STUDY DIRECTOR COMMITTEE ON DATA AND RESEARCH FOR POLICY ON ILLEGAL DRUGS

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