DOC PREVIEW
Are Illegal Drugs Inferior Goods?

This preview shows page 1-2-3-4-26-27-28-53-54-55-56 out of 56 pages.

Save
View full document
View full document
Premium Document
Do you want full access? Go Premium and unlock all 56 pages.
Access to all documents
Download any document
Ad free experience
View full document
Premium Document
Do you want full access? Go Premium and unlock all 56 pages.
Access to all documents
Download any document
Ad free experience
View full document
Premium Document
Do you want full access? Go Premium and unlock all 56 pages.
Access to all documents
Download any document
Ad free experience
View full document
Premium Document
Do you want full access? Go Premium and unlock all 56 pages.
Access to all documents
Download any document
Ad free experience
View full document
Premium Document
Do you want full access? Go Premium and unlock all 56 pages.
Access to all documents
Download any document
Ad free experience
View full document
Premium Document
Do you want full access? Go Premium and unlock all 56 pages.
Access to all documents
Download any document
Ad free experience
View full document
Premium Document
Do you want full access? Go Premium and unlock all 56 pages.
Access to all documents
Download any document
Ad free experience
View full document
Premium Document
Do you want full access? Go Premium and unlock all 56 pages.
Access to all documents
Download any document
Ad free experience
View full document
Premium Document
Do you want full access? Go Premium and unlock all 56 pages.
Access to all documents
Download any document
Ad free experience
View full document
Premium Document
Do you want full access? Go Premium and unlock all 56 pages.
Access to all documents
Download any document
Ad free experience
View full document
Premium Document
Do you want full access? Go Premium and unlock all 56 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 56 pages.
Access to all documents
Download any document
Ad free experience

Unformatted text preview:

Are Illegal Drugs Inferior Goods? Suryadipta Roy e-mail: [email protected] 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. 11. 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 in non-violent crimes to finance their addiction; and (c) the market in illegal drugs promotes crime and a violent business environment (Goldstein, 1985). Drug abuse also creates negative externalities through moral degradation as well as corrupting law enforcement officials and politicians (US General Accounting Office, May 1998). There are potential health costs of substance abuse from drug overdoses. Employment costs are of the form of reduced productivity of the drug-using workforce. Efforts have been undertaken to attach some form of valuation to these perceived individual and societal costs. Referred to as “cost of illness” (COI) studies, the estimated cost of substance abuse to the society have been calculated to be more than $143 billion in 1998 (ONDCP 2001a). These costs of drug abuse have been forwarded as the main justification for significant government intervention in the drug market. Despite government efforts to prevent drug abuse either through enforcement policies or by providing drug rehabilitation treatment to the users, purchase and sale of illegal drugs still goes on. According to the ONDCP, drug consumers in the US spent an estimated $60 to $90 billion per year on illicit drugs and illegally used licit drugs between 1988 and 1995. According to the National Household Survey on Drug Abuse (NHSDA), in 1979, 31.3% of the population above 12 years of age reported using an illicit drug at some point in their life. Between 1999 and 22001, this number had gone up from 39.7% to 41.7%. It is therefore interesting to study the characteristics of the US population that use illegal drugs. Given that a major share of drug control expenditure by the government is directed towards the supply side of the drug market, there is a lively debate on the efficacy of enforcement vis-à-vis (costs and benefits of) legalization of addictive substances. Enforcement expenditures on illegal drugs are expected to cause the price of drugs to rise and hence reduce consumption of these substances. On the other hand, legalization of these harmfully addictive goods would reduce their prices and would lead to an increase in consumption by the law of demand. Therefore, it is crucial to find out by how much consumption responds to change in price. Economic research analyzing the price effects of illegal drugs has mainly followed the rational addiction model developed by Becker and Murphy (1988). This model assumes that addicts behave rationally and take into account the intertemporal nature of addiction. Using data from Monitoring the Future (MTF), Grossman and Chaloupka (1998) examined the rational addiction model for cocaine consumption. Their results suggest annual cocaine consumption to be negatively related to the price of cocaine. In addition, they find current cocaine consumption to be positively related to past and future consumption. Using the same data source, Chaloupka, Grossman and Tauras (1999) estimated the effects of illicit drug prices, and legal sanctions for drug possession and sale on youth drug abuse. They find cocaine use by young people to be sensitive to price, such that, a 10 percent increase in the price of cocaine would reduce the probability of youth cocaine use by 9 to 10 percent. Increased sanctions for cocaine and marijuana possession were also found to have negative and statistically significant impact on substance abuse. Using NHSDA data, Saffer and Chaloupka (1999) estimate the effects of alcohol, cocaine, and heroin prices, and marijuana decriminalization on the demand for these 3substances. Their results also provide empirical evidence that illegal drug use is responsive to price. Marijuana decriminalization was found to increase the probability of marijuana participation by about 8%. 2. Prior Studies of the Income Effects of Drug Consumption The effect of income distribution on substance abuse has unfortunately not been rigorously studied in the literature. Intuitively this seems to be surprising, given that previous research had indicated that African Americans have higher probabilities of being regular users of heroin, and that both African Americans and Hispanics are more likely to be regular users of cocaine when compared to other racial categories (Saffer and Chaloupka, 1999). Because these races belong to the economically and socially disadvantaged section of the population as well, substance


Are Illegal Drugs Inferior Goods?

Download Are Illegal Drugs Inferior Goods?
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view Are Illegal Drugs Inferior Goods? and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Are Illegal Drugs Inferior Goods? 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?