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Price insensitivity
2006/12/27 23:28:49瀏覽264|回應0|推薦8
Posted by: Economist.com | NEW YORK

MARK KLEIMAN should be writing commercials for the drug industry.  The "street pharmaceutical" industry, that is:

The reporter places no emphasis on the most astonishing (if true) fact in the story: grams of highly pure Afghan heroin are now trading at $90 in LA. That's about a dime per pure milligram, compared with $2.50 a pure milligram in New York during the "French Connection" days. For a naive user, 5mg of heroin is a hefty dose, so your first heroin experience is now available for less than the price of a candy bar.

Is there a free-gift-with-purchase?

The rest of his piece is a rather sombre analysis of the market effects of drug policy.  In theory, punitive, American-style drug policy should operate on the price of drugs by interrupting the production and distribution network.  Anyone who's studied supply chain management knows what a problem that is!  The rising price should curb demand, as it does for everything else

In practice, it hasn't worked that way.  The street price of recreational drugs has been dropping pretty steadily for a while now in America despite ever more punitive drugs laws; about 80% in real terms for cocaine, even more than that for heroin, Mr Kleiman says.  And even if it weren't, Mr Kleiman, a drug policy expert, argues that opiates are not normal goods:

The price of having a heroin habit, by contrast, doesn't go down much. Opiate tolerance is virtually complete, so in the medium term an addict's consumption is limited only by his ability to find cash; the cheaper the stuff gets, the more he uses, without getting any more pleasure out of it once his receptors have adapted.

The good news is that the collapse from $2.50 to 50 cents seems to have had only a fairly modest impact on the number of new heroin users; that, like the price collapse itself, is not what I would have predicted based on simple microeconomics. Maybe this further decrease also won't matter much. But I'm still nervous: not so much about inner-city kids, who have lots of vicarious bad experience with heroin addiction, but about suburbanites. Fortunately, opiate addiction is much more treatable (using substitution therapies such as methadone and buprenorphine) than cocaine or methamphetamine addiction.

 That suggests that America could legalise drugs and reap the benefits of lower imprisonment and less drug-associated crime, without seeing much of an increase in drug use.  Either that, or it suggests that the threat of jail is all the price incentive that suburbanites need to keep them away from the stuff.

 

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