Hopping on the Methadone Bus

23 Pages Posted: 25 Jan 2009

See all articles by Steffen Lippert

Steffen Lippert

University of Auckland - Department of Economics

Christoph R. Schumacher

Massey University - Department of Commerce

Date Written: January 16, 2009

Abstract

This paper investigates the impact of a 'free drug program' on the market equilibrium of drugs. We introduce a screening model of the hard drug market in which dealers use payment and punishment options to screen between high and low risk users. We show that, if a free drug program selects sufficiently many high risk drug users, the pure-strategy separating market equilibrium ceases to exist and a symmetric mixed-strategy equilibrium results, in which drug users derive a higher expected utility. This encourages new drug users to enter the market. The novelty of the paper is the transmission mechanism for this effect, which is via the influence on market price.

Keywords: Drugs, Drug Policy, Drug Dealing, Free Drug Programs, Screening

JEL Classification: D11, D82, I18

Suggested Citation

Lippert, Steffen and Schumacher, Christoph R., Hopping on the Methadone Bus (January 16, 2009). Available at SSRN: https://ssrn.com/abstract=1332216 or http://dx.doi.org/10.2139/ssrn.1332216

Steffen Lippert (Contact Author)

University of Auckland - Department of Economics ( email )

Auckland
New Zealand

Christoph R. Schumacher

Massey University - Department of Commerce ( email )

Auckland
New Zealand

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