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Are Illegal Drugs Inferior Goods Suryadipta Roy e mail suryadipta roy lawrence edu This version June 15 2005 A similar version of this paper was presented at the Graduate Student session of the 2004 Southern Economic Association meetings held in New Orleans Louisiana The author wishes to thank the program participants including the discussant Justo Manrique for his helpful comments The author also thanks William Trumbull Stratford Douglas Subhayu Bandyopadhayay Alexei Egorov and Arabinda Basistha for their useful comments and suggestions All remaining errors are mine Are Illegal Drugs Inferior Goods Abstract Using data from the National Survey on Drug Use and Health evidence of income inferiority in illegal drug consumption is presented This is done by estimation of binary choice probit models with endogenous regressors The endogeneity of income with regard to drug consumption is considered and the more efficient three stage least squares procedures have been implemented The results indicate that accounting for endogeneity improves results on income inferiority with regard to drug consumption for the overall population When the respondents are divided into separate work categories illegal drugs are however found to be normal goods for respondents in school An implication of this study is that income distribution policies might be effective in controlling drug consumption It also points out the regressive nature of the government s substance abuse program JEL Classification I12 I18 Keywords income inferiority illegal drugs public policy 1 1 Introduction Substance abuse is one of the most serious issues facing US policymakers given its costs on society as well as on individual users These costs arise out of crime health problems and employment issues related to substance abuse The perceived relationship between illicit drug abuse and crime is three fold a substance abuse or withdrawal increases excitability and promotes violent behavior b narcotics users might engage

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