By Daniel Meji and Pascual Restrepo

This paper develops a simple model of the war against illegal drugs in producer and consumer countries. Our analysis shows how the equilibrium quantity of illegal drugs, as well as their price, depends on key parameters of the model, among them the price elasticity of demand, and the effectiveness of the resources allocated to enforcement and prevention and treatment policies. Importantly, this paper studies the trade-off faced by drug consumer country`s government between prevention policies (aimed at reducing the demand for illegal drugs) and enforcement policies (aimed at reducing the production and trafficking of illegal drugs in producer countries). We use available data for the war against cocaine production and trafficking in Colombia, and that against consumption in the U.S. in order to calibrate the unobservable parameters of the model. Among these are the effectiveness of prevention and treatment policies in reducing the demand for cocaine; the relative effectiveness of interdiction efforts at reducing the amount of cocaine reaching consumer countries; and the cost of illegal drug production and trafficking activities in producer countries.

Bogotá, Colombia: Universidad de los Andes–Facultad de Economía–CEDE, 2011. 31p.