Document Type

Honors Capstone Project

Date of Submission

Spring 5-1-2008

Capstone Advisor

Professor Christopher Rohlfs

Honors Reader

Professor Jeffrey Kubik

Capstone Major

Economics

Capstone College

Management

Audio/Visual Component

no

Capstone Prize Winner

no

Won Capstone Funding

no

Honors Categories

Social Sciences

Subject Categories

Economics | Other Economics | Public Economics

Abstract

Over the past five decades American drug policy can succinctly be classified by two words: expensive and punitive. American drug policy makers have conducted the “war on drugs” largely through supply side intervention. As the theory goes, by attacking drug producers, drug prices will rise due to the increased risk faced by suppliers, this risk will in turn be passed along to consumers in the form of higher prices. In order to critically asses the merits of such an expensive antidrug policy it is essential to estimate the price elasticity of demand for drugs.

The main finding of this paper is that cocaine users are extremely price inelastic and that a doubling of cocaine prices will result in approximately a five percent drop in cocaine usage. Further, policy analysis reveals that the theory driving supply side intervention is fundamentally flawed. Over the past thirty years, as antidrug spending has increased fivefold, drug prices have declined be nearly eighty percent – bolstering a conclusion that American policy makers need to rethink the “war on drugs”.

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.

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