U.S. flag

An official website of the United States government, Department of Justice.

Illicit Drugs: Price Elasticity of Demand and Supply

NCJ Number
Date Published
October 2001
133 pages
This study examined how supply-based programs, which restrict drug availability, consequently increase drug prices and reduced the initiation and continuation of drug abuse in the United States.
The study discusses how the prices of cocaine, heroin, marijuana, and methamphetamine have changed over the last 20 years and assesses how law enforcement has affected those trends. It estimates how changes in the prices of illicit drugs have influenced youths' decisions to initiate drug use and have effected continued use by hardcore and occasional drug users. Finally, it projects the prevalence of illicit drug use into the years 2002 and 2007 given different scenarios about the effectiveness of supply-based programs. Data for this empirical study came from the System to Retrieve Information from Drug Evidence, the Domestic Monitor Program, the National Household Survey on Drug Abuse (1988-1996), and Drug Use Forecasting data (1989-1998). The study uses a specially developed survival model to analyze whether drug prices affect the eventual probability that a youth would experiment with drugs and the age of experimentation. It uses a specially developed ordered probit model to study how drug prices influence decisions to use illicit substances by those who, at some time, had tried drugs at an experimental level. It uses an ordered logistic model to analyze the relationship between illicit drug prices and the level of substance abuse among arrestees. The study concludes that prospective and confirmed drug users are sensitive to drug prices. If the United States can increase the effectiveness of source country programs, interdiction, and domestic law enforcement, drug use can be reduced appreciably. Notes, tables, figures, references, appendixes

Date Published: October 1, 2001