Does tougher enforcement make drugs more expensive?
December 2014
Although the fact of prohibition itself raises prices far above those likely to pertain in legal markets, there is little evidence that raising the risk of arrest, incarceration or seizure at different levels of the distribution system will raise prices at the targeted level, let alone retail prices. The number of studies available is small; they use a great variety of outcome and input measures and they all face substantial conceptual and empirical problems. Given the high human and economic costs of stringent enforcement measures, particularly incarceration, the lack of evidence that tougher enforcement raises prices call into question the value, at the margin, of stringent supply-side enforcement policies in high-enforcement nations.
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Implications
The standard model justifying vigorous law enforcement against drug sellers, from production to retailing, asserts that increases in these levels of enforcement actions will increase price. As shown, there is little evidence in support of that proposition, and a modest amount of weak evidence against it.
This is far from a judgment on whether or not drug enforcement is effective in suppressing markets. Research is limited by the fact that most existing studies address well-established markets. Enforcement (even at some fairly minimal level) may be most effective in suppressing new markets. Precisely because these markets did not emerge, the effect of enforcement has not been studied. It is notable that very few of the many attractive new drugs that are developed each decade actually become popular enough to generate major markets. That may reflect the endogenous dynamics of fashion. It may also be a latent result of aggressive enforcement early in the epidemic life-cycle of specific substances. Stringent enforcement measures may be especially effective as potential new users and sellers seek to find each other in the emergence of a new market. The work of Caulkins and colleagues also suggests that enforcement effectiveness is sensitive to where a market is in terms of epidemic stages.
Regarding markets for the most prominent and socially costly substances, the existing research base suggests an agnostic position: there is not sufficient evidence to state whether a particular intensification of enforcement will raise prices; hence nothing should be said, is the conventional position.
However, given that nations commit billions of dollars and lock up hundreds of thousands of individuals in part on the basis of this belief, it is insufficient to offer only the usual call for ‘further research’. It is a long-noted irony that enforcement receives most of the policy resources, but that treatment and prevention receive most of the research dollars. Gaps in existing research should indeed be addressed, but that is a long process. Meanwhile, punitive policies enacted or defended on the basis of their capacity to raise prices merit have heightened scrutiny. In the absence of evidence that enforcement can raise prices – or that price increases are actually welfare enhancing across a range of interventions – some wealthy societies should probably spend less on enforcement at the margin, particularly enforcement measures that bring high social costs in other domains.
In particular, these findings suggest more discriminating policies regarding street-level sellers. Stringent policies in this domain have resulted in mass incarceration in the United States, with its attendant human costs. Policymakers should also revise approaches to source-country crop eradication. Given the lack of evidence that such efforts have substantial impacts on street drug prices, and the strong theoretical argument that the effects should be slight, greater attention to the environmental, economic and social challenges of such approaches is especially wise.
