Skip to content
Licensed Unlicensed Requires Authentication Published by De Gruyter July 22, 2020

Demand and Supply in the Cocaine Market: An Empirical Study

Humberto Bernal

Abstract

This research analyzes the cocaine market from an economic perspective. The consumption of the coca leaf is ancient, and cocaine has been consumed for over 100 years. Longitudinal data from producing countries is taken to estimate cocaine cost structure, and longitudinal data from regions around the world is taken to estimate demand curve. Data is annual and comes from United Nation Office on Drugs and Crime reports. A microeconomic model under imperfect competition is calibrated to estimate volumes and prices of cocaine under illegal market and legal market. Results show that cocaine production has internal economies of scale, and the demand curve satisfies law of demand. Moreover, the world demand for this narcotic segmented by regions is elastic and normal good as income increases. From this economic picture, it is necessary to regulate this market efficiently through price within a context of legality in production and consumption.

JEL Classification: D04; D12; D42

Corresponding author: Prof. Humberto Bernal, Ph.D., Economics, Programa de Economía, Universidad Colegio Mayor de Cundinamarca, Calle 28 No. 5B-02, Bogotá, Colombia. Tel.: 571 282 5716, E-mail:

aI would like to thank the journal reviewers’ comments, they were very important to improve the results, econometric interpretations and state of the art in this topic.

This research does not represent the views of Universidad Colegio Mayor de Cundinamarca; it is an individual position of the author.


References

Basov, S., M. Jacobson, and J. A. Mirony. 2001. “Prohibition and the Market for Illegal Drugs: An Overview of Recent History.” World Economics 2 (4): 159–74.Search in Google Scholar

Becker, G. S., M. Grossman, and K. Murphy. 2006. “The Economic Theory of Illegal Goods: The Case of Drugs.” Journal of Political Economy 114 (1): 38–60, https://doi.org/10.1086/498918.Search in Google Scholar

Born, B., and J. Breitung. 2016. “Testing for Serial Correlation in Fixed-Effects Panel Data Models.” Econometric Reviews 35 (7): 1532–4168.10.1080/07474938.2014.976524Search in Google Scholar

Bruner, N., and M. W. Johnson. 2014. “Demand Curves for Hypothetical Cocaine in Cocaine-Dependent Individuals.” Psychopharmacology 231 (5): 889–97, https://doi.org/10.1007/s00213-013-3312-5.Search in Google Scholar

Castillo, F. (1987). Los Jinetes de la Cocaína. Bogotá, Colombia: Documentos Periodísticos.Search in Google Scholar

Dillehay, T. D., J. Rossen, D. Ugent, A. Karathanasis, V. Vásquez, and P. J. Netherly. 2010. “Early Holocene Coca Chewing in North Peru.” Antiquity 84 (326): 939–53, https://doi.org/10.1017/s0003598x00067004.Search in Google Scholar

Friedman, M., and T. S. Szasz. 1992. On Liberty and Drugs: Essays on the Free Market and Prohibition. The United States: Drug Policy Foundation.Search in Google Scholar

Gootenberg, P. 2008. Andean Cocaine: The Making of a Global Drug. The United States: The University of North Carolina Press.Search in Google Scholar

Henman, A. 1981. Mama Coca. Bogotá, Colombia: Áncora Editores y Obeja Negra.Search in Google Scholar

Keefer, P., N. Loayza, and R. R. Soares. 2010. “Drug Prohibition and Developing Countries: Uncertain Benefits, Certain Costs.” In Innocent Bystanders: Developing Countries and the War of Drugs, P. Keefer and N. Loayza, 392 Washington, DC: The World Bank and Palgrave Macmillan.10.1596/978-0-8213-8034-5Search in Google Scholar

Kennedy, M., P. Reuter, and K. J Riley. 1993. “A Simple Economic Model of Cocaine Production.” Mathematical and Computer Modelling 17 (2): 19–36, https://doi.org/10.1016/0895-7177(93)90237-s.Search in Google Scholar

Loayza, N., and N. Sugawara. 2012. “Would Liberalization Lead to Epidemic Cocaine Consumption?.” Applied Economics Letters 19 (14): 1405–9, https://doi.org/10.1080/13504851.2011.631882.Search in Google Scholar

Loayza, N., E. Villa, and M. Misas. 2017. “Illicit Activity And Money Laundering From An Economic growth Perspective: A Model and an Application to Colombia.” Journal of Economic Behavior & Organization 46 For coming.10.1016/j.jebo.2017.10.002Search in Google Scholar

Lucas, R. 1983. “Econometric Policy Evaluation: A Critique.” In Studies in Business-Cycle Theory, R. Lucas, 104–30. United States of America: The MIT Press.10.1016/S0167-2231(76)80003-6Search in Google Scholar

Miron, J. A., and J. Zwiebel. 1995. “The Economic Case against Drug Prohibition.” Journal of Economic Perspectives 9 (4): 175–92, https://doi.org/10.1257/jep.9.4.175.Search in Google Scholar

Miron, J A. 2003. “The Effect of Drug Prohibition on Drug Prices: Evidence from the Markets for Cocaine and Heroin.” The Review of Economics and Statistics 85 (3): 522–30, https://doi.org/10.1162/003465303322369696.Search in Google Scholar

Musto, D. 1991. “Illicit Price of Cocaine in Two Eras: 1908-14 and 1982-89.” Pharmacy in History 33 (1): 3–10.Search in Google Scholar

Musto, D. F. 1998. “International Traffic in Coca through the Early 20th Century.” Drug and Alcohol Dependence 49 (2): 145–56, https://doi.org/10.1016/s0376-8716(97)00157-9.Search in Google Scholar

Prescott, E. C., and G. V. Candler. 2008. “Calibration.” In The New Palgrave Dictionary of Economics, P. Macmillan. London: Palgrave Macmillan.10.1057/978-1-349-95121-5_2569-1Search in Google Scholar

Rocha, R. R. 2000. La economía colombiana tras 25 años de narcotráfico. Bogotá, Colombia: Siglo del Hombre Editores.Search in Google Scholar

Ruiz Franco, J. C. 2011. Pioneros de la coca y la cocaína. Madrid: El Peón Espía.Search in Google Scholar

Steiner, R. 1996. “Los ingresos de Colombia producto de la exportación de drogas ilícitas.” Coyuntura Económica 26 (4): 73–106.Search in Google Scholar

Stock, J. H., J. H. Wright, and M. Yogo. 2002. “A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments.” Journal of Business & Economic Statistics 20 (4): 13, https://doi.org/10.1198/073500102288618658.Search in Google Scholar

United Nations. 2008. World Drug Report (WDR). New York, The United States: The United Nations Publication.Search in Google Scholar

UNODC. 1999–2017. World Drug Report. New York, The United States: The United Nations Publication.Search in Google Scholar

UNODC. 2007. A Century of International Drug Control. New York, The United States: United Nations Publication.Search in Google Scholar

Wainwright, T. 2016. Narconomics: How to Run a Drug Cartel. New York, The United States: Public Affairs.Search in Google Scholar

Received: 2018-10-15
Accepted: 2020-05-05
Published Online: 2020-07-22

© 2020 Walter de Gruyter GmbH, Berlin/Boston