Policy Seminars

Speaker: Nicola Persico
New York University

Topic: A Search-Theoretic Model of the Retail Market for Illicit Drugs

Date/Place/Time: Friday, March 5, 2010 at 1:30PM-3:00PM
UCLA Anderson Gold Hall D307
A search-theoretic model of the retail market for illegal drugs is developed. Trade occurs in bilateral, potentially long-lived matches between sellers and buyers. Buyers incur search costs when experimenting with a new seller. Moral hazard is present because buyers learn purity only after a trade is made. The model produces testable implications regarding the distribution of purity offered in equilibrium, and the duration of the relationships between buyers and sellers. These predictions are consistent with available data. The effectiveness of different enforcement strategies is evaluated, including some novel ones which leverage the moral hazard present in the market.
Link to paper (if available): Click here for paper