European Network to Develop Policy Relevant Models and Socio-Economic Analyses of Drug Use, Consequences and Interventions Final report: Part 7 – Analysis of economic markets and policy measures

Abstract

The objective of the working group 3b was to develop criteria for a systematic review of economic studies as a basis for setting up market models.

A review of the empirical estimates of factors influencing supply and demand has been completed by Christine Godfrey and presented at the meeting of the working group (23-24 Oct. 2000, Lisbon). This review found that there was a number of empirical studies but these were mainly conducted using data from the United States and few European estimates were identified. It was found that there was a growing literature indicating that the demand for drugs is influenced by prices. Increases in drug prices leads to a decrease in demand for these drugs. These impacts had been found across a range of “hard” and “soft” drugs. These findings give support for attempting to build drug market simulation models, such as those being constructed by two of the partners in the project, Juan Tecco and Gernot Tragler. A few studies have investigated whether different types of drugs are complements or substitutes. These type of studies have considered the relationship between legal and illegal drugs as well as the relationship between different illegal substances. The results suggest that there are more examples of complements than substitutes.

A number of studies were identified which provided estimates of the impact of law enforcement on demand for illicit drugs. Little data was found on the role of income or other economic factors on demand.
Few studies were found that provided empirical estimates of different aspects of the supply of drug markets. Most studies have been analyses of the effect of enforcement and most of these have been partly constructed for modelling work rather than using direct observation and analyses. There are different views on the impact of changing enforcement activities and street level prices. A few studies have looked at market interactions and the results suggest as expected spending on drug control impacts on supply and demand. There are data in Europe on prices and different aspects of law enforcement as presented by Toon van der Heijden at the Expert meeting.

The review suggests there is potential to develop empirical research within and across Europe. Economic models demand significant amounts of certain kinds of data and a theoretical understanding, such as the work developed by Giovanni Trovato. There is also a need to understand the markets, which produce these data. Describing different markets and relationships that exist through qualitative studies of the kind being conducted by Nacer Lalam and Letizia Paoli is an essential part of developing such models and interpreting any results.

The meeting of the group was held at the EMCDDA in Lisbon on October 23-24, 2000. It allowed the partners of the working group 3b to present their current work related to drug markets and/or modelling.

Nacer Lalam presented results from a current research on drug trafficking and money laundering in France, with a special focus on the links between poor areas in big cities and criminal organizations. He also referred to other empirical researches carried out by the same team (CIRED) on the supply system of illicit drugs in France: from the final segment (where the user meets the street dealer) to the highest level (export, distribution...). He underlined two complementary logics associated with the motivation to enter into drug trafficking: the logic of socio-economic integration, 

which concerns mainly the young native from deprived neighbourhoods, and the logic of accumulation which applies to members of criminal organisations.

Letizia Paoli focused on the preliminary results of an ongoing research project on local drug markets (EMCDDA project) in Frankfurt and Milan. She argued that in both cities the distribution chain is often rather short and may be composed of only three levels: the importer, the dealer, and the final customer. In Frankfurt as well as in Milan, the great majority of drug deals, even those involving large quantities of drugs, seem to be carried out by numerous, relatively small, and often ephemeral enterprises.

Juan Tecco presented the work undertaken within an EMCDDA project to develop a macro-economic model to estimate the total demand for heroin. This model simulates the career of potential heroin users and their related demand for heroin at different stages of use or addiction. Different measures were introduced in the model at year 10 and their effect on the cumulative heroin demand was modelled. The largest impact was observed when modelling changes in heroin price levels. Also the prevention of trying heroin could be a potentially effective measure.

Toon van der Heijden presented the results of a study to assess the trueness of the rumour that 15 to 30 tons of cocaine, would have been imported – but not seized – into the Netherlands between 1990 and 1995. Trends observed in seizures, prevalence and prices data all point to the Netherlands increasingly serving as a primary gateway for cocaine to the European market, but this phenomenon manifested itself before, during, and after the critical period. Having compared the expected changes against available data, it was concluded that the findings do not support the thesis on the importation in the first half of the nineties of 15 to 30 tons of cocaine which were not seized.

Giovanni Trovato’s presentation was more theoretical and focused upon the development of a model – based on the Harrod-Domar (HD) mode, which allows to analyse the relations between the growth rates of two different kinds of economies. The standard HD tries to determine under which circumstances the economy is capable to obtain a steady state growth. Trovato’s model tries to evaluate the growth’s stability of the economic system when there is a sector (the drug sector) inside the economy which takes away resources for investment in the legal sector. The model studies the impact of the increase of criminal activity in the development of economic system.

Gernot Tragler presented the work carried out on dynamic models of illicit drug consumption by the members of the Department of Operations Research and Systems Theory at the Vienna University of Technology and international colleagues. Past work has mainly concentrated on the current U.S. cocaine epidemic, for which both descriptive and normative (in particular, so-called optimal control) models have been developed and analysed. Current work started to involve age-specific aspects of drug epidemics. Future work will aim at validating existing models with European data and developing models of European-specific problems of drug use.

The discussions at the meeting during the presentations and at the final session suggested there was scope for considerable research in Europe around drug markets and policy options. There was currently, however, difficulties in both building research teams of the interdisciplinary nature required for such work and providing the necessary research funding. Several practical tasks were identified by the group including compiling data on prices, purity and seizures both at macro and micro levels. There was also some need to conduct some additional reviews on socio anthropological models, relevant epidemiological research, social costs and cost- effectiveness evidence on the different policies relevant to market models.