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AP23

Author Jenny Chalmersm Deborah Bradford and Craig Jones
Published September 2010
Report Type Affiliated publication
Subject Costs of crime; Drugs and Drug Courts; Policing
Keywords Behavioural economic analysis, Price elasticity, Methamphetamine, Heroin, Polydrug use, Supply-side drug law enforcement

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Summary

Background

A key aim of supply-side drug law enforcement is to reduce drug use by increasing the retail price of drugs. Since most illicit drug users are polydrug users the effectiveness of this strategy depends on the extent to which drug users reduce their overall consumption of drugs. The literature shows that drug users do reduce their consumption of a drug when its price increases. However the extent of that decrease and the implications for the use of other drugs vary across studies.

Method

A sample of 101 Australian methamphetamine users was surveyed using a behavioural economics approach. Participants were given a hypothetical fixed drug budget, presented with a range of drug price lists and asked how many units of each drug they would purchase. Methamphetamine and heroin prices were varied independently across trials.

Results

While demand for both methamphetamine and heroin was found to be price elastic, elasticity estimates were influenced by the nature of participants’ drug dependence. The group least responsive to changes in methamphetamine price were those dependent only on methamphetamine, while the group most responsive were dependent only on heroin. Similar findings emerged in relation to changes in heroin price. Cross-price elasticity analysis showed limited substitution into other drugs as the price of methamphetamine increased. In contrast, for heroin, there was significant substitution into pharmaceutical opioids and to a lesser extent, benzodiazepines and methamphetamine. However, for the most part, the decreases in methamphetamine or heroin consumption outweighed any substitution into other drugs.

Conclusion

The reduction in overall drug consumption and expenditure in response to price increases in heroin and methamphetamine observed in this sample lend support to supply-side enforcement strategies that aim to increase retail drug price. Notably, this analysis highlights the importance of accounting for the nature of users’ drug dependence in estimating price responsiveness.

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