According to the article “Can Supply Restrictions Lower Price? Violence, Drug Dealing and Positional Advantage” by Jonathan P. Caulkins, Peter Reuter, and Lowell J. Taylor, the deployment of the typical competitive model to the illegal drugs’ market has become widespread in the field of economics. Although the model is an adequately representative abstraction of drug markets in the real world, it offers an ideal approach for assessing policy effects. For instance, considering the policy implications that hinder supply by imprisoning an increased number of drug dealers, it is crucial to note that the supply curve shifts left and upwards, leading price in the market to rise and minimizing the magnitude of drugs existent in the marketplace. The quantity of minimization in equilibrium quantity is depicted as relying on-demand elasticity, which is also the implication on the revenues dealers generate, partly justifying significant research initiatives aimed at approximating demand’s price elasticity for distinct illicit drugs.
Caulkins, Reuter, and Taylor claim that comprehending how the prosecution of sellers implicates the results is crucial for real policy rather than pedagogical illustrations. The immense amount of funds the United States spends on drug control is directed to enforcement instead of minimizing demand via deterrence and treatment. Also, most of the persecution emanating from the enforcement usually targets individuals participating in distributing drugs as opposed to users. The authors also add that the “risks and prices” structure in which dealer risk recompense mostly accounts for illicit drug prices serves as an exploration that revolves around the typical competitive model. The commonness of such approaches depicts that the approach suggests no rents exist.
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The contributions the authors emphasize making here is to reassess the regular competitive model when sellers resort to violence and threatening violence during the typical trade process, such as using vehemence as a way of addressing disputes, administering contracts, and safeguarding turf. Here, the article depicts two traits associated with the standard competitive model. Firstly, the authors facilitate heterogeneity in the capacity or inclination of the dealers to ensure continuity of their enterprise. This allows the toughest dealers to have an enduring cost advantage, enabling them to generate rents in the illegal drug market. Secondly, the threat or actual utilization of violence by a single dealer leads other dealers to incur higher costs. The competitive advantage of a foul dealer emanates at the expense of other market dealers. In this case, drug dealers skilled in utilizing violence can secure beneficial physical establishments, allowing them to situate their activities. The locations offer extra safeguards from discovery by law enforcement officials, leading them to reduce their operating costs. The removal of a violent dealer from the market results in the opening up of an advantageous location, minimizing the costs that other drug dealers incur.
In the article, Caulkins, Reuter, and Taylor reveal that the model they adopt is distinct from the standard competitive model based on the number of forecasts regarding policy intrusions. Here, a policy of imprisoning violent dealers might minimize the drug’s equilibrium price and raising drug consumption. This counter-instinctive consequence emerges due to a violent dealer’s arrest minimizing the outward costs that other dealers incur, with the overall impact being a probable minimization in marginal dealer’s cost. The issue emerges due to recent drug price trends across the United States, with the heroin, cocaine, and methamphetamine prices reducing significantly despite the supply-oriented enforcement growing considerably.
An additional evident forecast entails the wide policy market impact, which is crucial to raising drug prices, including the growing penalty the marginal dealer faces. In this sense, the article reveals that the overall implication might focus on amassing drug selling profitability for somewhat prosperous dealers. According to Caulkins, Reuter, and Taylor, numerous drug enforcement policy assessments have emphasized the repercussions associated with quantity and prices, including the dependent users’ number and quantity consumed and overall spending, which is reputed to relate to economic-obsessive offenses by users and the sellers’ overall violence. Also, profits might serve unique interests since they can encourage violence. Generally, an approach that minimizes use by raising prices while boosting the rents prosperous dealers earn might result in socially counterproductive implications of encouraging drug-associated violence and drug trade entry, depicting a tournament trait.
The logic the authors develop in the article concerns markets that portray the existence of probable violence, in which sellers institute considerable externalities to each other. The markets dealing with costly drugs, including heroin, cocaine, and methamphetamine, are key areas of focus. Caulkins, Reuter, and Taylor approximate that compensation for violence costs and risks represent around a third of the cost structure of the sector for cocaine. Some of the vehemence emanates from users, including those stealing from their sellers, although most of it is systemic, occurring between sellers due to disputes concerning turf.
In the article, several observations become apparent regarding the illegal drug markets’ structure and the violence related to the market. Firstly, the drug trade serves mostly as an act of individuals or loose confederations as opposed to huge organizations. Around 92 percent of state and about 86 percent of drug prisoners usually indicate not to affiliate with any organized group. As such, Caulkins, Reuter, and Taylor model drug sellers as individual businesspersons rather than organizational employees. Secondly, the authors clarify that whereas the ability to threaten violence serves as a crucial seller’s asset, such as gathering debts, the threat is usually inadequate most of the time. Confrontations often escalate to real violence, with these serving as the incidents the society expresses significant concern, although they account for a negligible proportion compared to probable violent hostilities. The issue becomes sensible whereby approximately two million drug sellers undertake transactions amounting to over two billion annually across the U.S., although homicides related to drugs occur in thousands.
Conversely, the article claims that maintaining a violent reputation is costly, irrespective of whether dealers are able to reduce violence between them because of “turf battles.” The most noticeable cost entails attaining weapons as opposed to the purchase price since the (especially illicit) weapons subject sellers to risk of arrest when found owning weapons instead of drugs. Hence, they end up serving longer periods in prison due to weapon possession. Also, sellers might resort to violence against more susceptible targets, comprising users owing dealers money, allowing them to improve their reputation among other drug traders.
Discussion of Evaluative Criticisms
Whereas the model Caulkins, Reuter, and Taylor adopt offer new ideas, it appears incomplete with several essential dimensions. Regarding the exposition scope, the authors kept the model static, modest, and deterministic. Nonetheless, the attainment of status for contingent ferocity is a stochastic and vibrant progression. Newcomers need to ensure in ensuring they emphasize growing their reputation. However, over-investment might risk them early exit by incarceration or death while underinvestment loses prospective rents. The uncertainty that emerges results in complications, rendering superior dealers unable to win oppositions always. Aptitudes for violence might disappear due to the aging of individuals or when they suffer addiction effects and can worsen as individuals acquire weapons, establish new alliances, and gain wealth, providing them with the capacity to purchase protection and loyalty. The ideal approach many dealers might utilize would comprise assessing their abilities to those above them. An additional area to consider is a model revolving around certain uncertainty regarding both results of a skirmish and the value to lowly-ranked dealers of trying to climb the hierarchy. Here, it is crucial to realize that a dealer has more than two different sources of advantage from exclusion from a superior dealer, including rising up the hierarchy and growing overall reputation.
An additional area to consider would be to emphasize the relations across different levels in the market. Evidence exists that most cocaine distributors on streets currently generate low earnings, compared to their initial times and legal employment. Also, it seems earnings in superior levels remain high. Whereas the model by Caulkins, Reuter, and Taylor predicts rivalry in the retail market, it might be that violent reputation serves as what encourages participation in superior levels.
Overall, the article serves as an initial examination of the effects of positional externalities a heterogeneity in the drug dealing market without claiming that the model extrapolates the noted prices. Nonetheless, the model rhymes with historical trends as opposed to conventional models, undermining the prima facie suppositions that growing drug persecution leads to increased prices and minimizes profits drug sellers generate or violence associated with drugs. Thus, whereas the article’s emphasis is violence utilization and violence’s threat as a way of attaining cost advantage in the drug sector, it does not explicitly emphasize the welfare costs or other repercussions associated with violence. Rather, it assesses the implications in equilibrium in the market and the effect on policy intercessions.
Questions
Why are superior drug dealers more devoted to safeguarding their reputation as opposed to resorting to violence to secure their status and wealth?
How can the government reduce demand through deterrence and treatment while controlling drug sales in the market?
How are the nastiest drug dealers able to protect cost advantages, which enable them to generate immense rents in the drug trade market?
Why are individuals or loose confederations mostly associated with the drug trade, instead of big organizations?
