Drug deals: Prices, policies, and use rates

This thesis evaluates the causes and consequences of illicit drug use as well as the policies aimed at curbing it. The first chapter establishes a strikingly large positive relationship between youth cohort size and rates of youth illicit drug use. I show that this relationship is not driven solely by national trends and explore various explanations for this phenomenon: intergenerational attitude transfers, scale economies in drug markets, and monitoring resources. I find that: (1) although parental attitudes matter for youth marijuana use they cannot explain the impact of cohort size on rates of use; (2) larger youth cohort size is also associated with lower youth drug arrest rates; and (3) larger youth cohort size is related to lower marijuana prices. The explanation most consistent with the observed patterns in the data is that an increase in youth cohort size produces a thicker youth drug market that, through strained police resources and informational economies, generates cost-savings in drug production and distribution.; Chapter 2 seeks to understand why marijuana, a drug that has few side-effects and could benefit sick and dying patients, is not available for medical use while other more dangerous drugs, such as amphetamines, can be relatively easily obtained. I show that regulators, in an effort to promote their own longevity, targeted marijuana because it lacked a concentrated lobby against its control. Nonappropriability of rents, on the producer-side, and fixed costs of organizing, on the consumer side, coupled with incomplete information about the potential uses of marijuana sealed its fate.; Chapter 3 evaluates the effects of screening truckers for illicit drugs on highway safety. I use a set of “natural experiments,” created by the passage of 13 state laws and a Department of Transportation mandate, to examine the impact of testing on accident fatalities. I find that mandated testing led to a 7 to 10% reduction in truck accident fatalities and that the social benefits substantially outweigh the costs of the program.; The final chapter examines the relationship between the enforcement of drug prohibition and illicit drug prices. Over the past 25 years, as enforcement efforts aimed at reducing consumption and raising prices have expanded, per capita consumption has remained stable while the real purity adjusted prices of both cocaine and heroin have been more than halved. An increasing regulatory burden in the legal sector, the secular decline in relative wages of the low-skilled, technological improvement in evasion and decreasing market power in the illicit drug trade have combined to offset increases in supply costs from rising enforcement.