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

Prices at each distribution level fell markedly from 1981 to about 1988, after which price decreases have
been gradual and irregular. 10 For example, at the lowest distribution level reported here, the typical
purchase of 350 milligrams of pure cocaine (that is, about 0.5 bulk grams at 67 percent purity) cost $400 to
$460 per pure gram in 1981 and 1982. It cost $170 to $230 per pure gram in 1999 and 2000. Similarly, at
the next higher distribution level, the typical purchase of 4.4 grams of pure cocaine (that is, almost 7 bulk
grams at 63 percent purity) costs roughly $260 to $300 in 1981 and 1982. A purchase cost around $90 to
$100 per pure gram in 1997 and 1998.
Figure 1 shows that some price increases at the wholesale level seem to cascade throughout all the lower
distribution levels, perhaps suggesting that events either outside the country or at the wholesale level affect
retail prices. The largest and longest lasting effect is associated with the end of 1989 and the beginning of
1990, with another sharp effect happening in the second quarter of 1992 and again in the first quarter of
1997. Prices may have spiked in the middle of 1995, but if they did, that spike only appears after a lag at
the lowest distribution level.
Associating these price spikes with specific drug interdiction events is problematic. It seems likely that
some interdiction events had measurable effects on cocaine prices, while others did not, and distinguishing
which events had an effect and which did not is complicated by the absence of knowledge about the delay
between when an event occurred and when prices changed. Notwithstanding these difficulties, Abt
Associates has made substantial progress modeling the interdiction-price relationship for cocaine. 11
The relationship between wholesale and retail prices is of considerable interest. The correlation between
wholesale and retail prices is 0.46, and even though this estimate is technically inappropriate, it does
correctly portray the fact that both price series tend to move together. In fact transfer function methods
(which are technically more appropriate because they model various time series aspects of the data)
indicate that increases in wholesale prices are associated with lagged as well as contemporaneous
increases in retail prices (see section 7 of Appendix A). Specifically, we estimate that an increase in retail
prices of $1 in a given month is associated with an increase in wholesale prices of $0.034 (p = 0.001) the
10 Most of the decline since 1988 can be attributed to an increase in the consumer price index. Whether the CPI
should be applied to illicit drug transactions, or whether an alternative price index would be better, is debatable.
These price estimates use the CPI in lieu of a clear alternative.
11 Layne M., Bruen, A., Johnston P., Rhodes W., Decker S., Townsend M., Chester C., Schaffer G., Lavin J.
“Measuring the Deterrent Effect of Enforcement Operations on Drug Smuggling, 1991-1999,” Abt Associates
2001.
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