The Price of Illicit Drugs: 1981 through the - The White House

Introduction
As policy makers assess the effectiveness of the Nation’s anti-drug efforts, they should be concerned with
trends in the price and purity of illicit drugs on the Nation’s streets. Drug price and purity cannot tell the
entire story, or even most of the story, about the success of anti-drug programs. Still, in an area of high
national concern, where there are few clear indicators of program effectiveness, trends in drug prices are an
essential part in understanding the Nation’s drug trends.
Changes in drug price and purity may reflect the effect of supply and demand reduction programs. That
reflection is imperfect, of course, because many additional factors affect drug markets. Nevertheless, as
source country and interdiction programs reduce the flow of drugs to the United States, they cause supply
shortages in domestic markets, with the consequence that sellers dilute their products’ quality and charge
higher prices for the limited supply. Even if source country and interdiction programs fail to reduce the
level of drug imports, those programs increase drug prices by imposing higher business costs on producers
and shippers. Like any businessman, a drug dealer will expect customers to cover at least some of those
higher costs.
Some researchers claim that source country and interdiction programs have small effects on domestic
prices. 1 Their reasoning is that drug producers can quickly expand production efforts, so shortages are
ephemeral. Also, they argue, domestic dealers account for most distribution costs, so increasing production
and foreign shipping costs could not substantially increase domestic prices. Other researchers have
challenged this reasoning and claim a strong empirical relationship between domestic prices and both
source zone and interdiction efforts. 2 In the judgement of the National Research Council, this issue remains
unsettled. 3
A kilogram of pure cocaine costs about $25,000 at the wholesale level. For purposes of this report,
wholesale level is defined as a large street purchase. The size levels depend on the drug and are defined
later in this report. This is a high price for a product that is basically agricultural, requires inexpensive
chemical processing, and has minimal shipping costs absent interdiction. Consequently, source zone and
1 Rydell, C. and Everingham, S. Controlling Cocaine: Supply versus Demand Programs, Drug Policy Research
Center, Santa Monica, California: Rand, 1994.
2 Crane, B., Rivolo, A. and Comfort, G. “An Empirical Examination of Counterdrug Interdiction Programs
Effectiveness,” paper prepared for the Institute of Defense Analysis, Washington, D.C., 1997.
3 Manski, C., Pepper, J. and Thomas, Y. Assessment of Two Cost Effectiveness Studies on Cocaine Control Policy,
National Academy Press, Washington, D.C., 1999.
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