Assessment of Two Cost-Effectiveness Studies on Cocaine Control Policy (1999) / Chapter Skim
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3 The IDA Study
3 The IDA Study
Pages 29-44
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From page 29... ...
, couples time-series data on cocaine prices and consumption in the United States with a narrative description of contemporaneous interdiction events to assess the cost-effectiveness of interdiction activities in reducing cocaine consumption. The analysis has three steps.
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From page 30... ...
The IDA price series aggregates the prices paid for the purchase of a wide range of quantities of cocaine, from less than 1 gram to more than 30 grams. The IDA study observes that the price paid per pure gram tends to decline substantially with the quantity purchased, with the price per pure gram at the retail level (i.e., 0-10 grams)
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From page 31... ...
The data show that the basic downward trend in cocaine prices is interrupted by an abrupt and lasting change in 1989 and by a number of short-lived upward "excursions" that appear from time to time. The IDA study attributes these interruptions to the eight interdiction events, stating "the sudden change in the price decay rate and each of the short-term excursions are shown to follow the initiation of major interdiction activities, primarily in the source zone nations, and are thus to be causally connected" (pp.
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From page 34... ...
The final step in the IDA chain of reasoning combines the study's finding on the price effect of interdiction events with the conventional price elasticity of demand estimate of -0.5 and with data indicating that the U.S. government spends about $1-2 billion per year on all interdiction activities.
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From page 35... ...
The committee's major concerns about the data used in the IDA study include the development of the price series and the procedure for selecting interdiction events. Even if one accepts the IDA data at face value, the committee has deep reservations about the inferential methods used to relate price fluctuations to intervention events.
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From page 36... ...
In the absence of information on the DEA's purchasing strategy, it is impossible to know the extent to which the short-term price fluctuations identified by IDA are artifacts of changes in undercover purchase patterns and the extent to which they describe real changes in cocaine prices. The Street-Price Index Even if the STRIDE data did describe a random sample of cocaine transactions, the street-price index developed in the IDA study would be highly suspect.
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From page 37... ...
The study does not specify what is meant by "major changes" nor what "care was taken." The IDA study aggregates cocaine prices to reduce the statistical variability in the price series (II-18, 19~. However, the procedure used in the IDA study to construct a street-price index makes it difficult to assess the validity of the study's findings on the association between interdiction events and short-term price fluctuations.
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From page 38... ...
Sampling Error Even if the STRIDE data did provide a random sample of transactions and an appropriate price series were formed from these data, a statistically valid analysis of the price series would require due attention to sampling error. The IDA study reports that cocaine prices are highly variable across transactions even within quantity strata (p.
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From page 39... ...
Whatever the IDA criteria may be, the committee's central concern remains that the IDA study only examines the possible effects of eight specific interdiction events and not of interdiction activities in general. At worst, if interdictions are classified as major events on the basis of ex-post realizations of street prices, the observed associations are meaningless.
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From page 40... ...
The IDA analysis attributing price changes to interdiction events and evaluating the cost-effectiveness of interdiction in reducing cocaine consumption implicitly assumes that the demand curve relating quantity of cocaine to price was fixed during the entire 1983-1996 period examined. That is, the study assumes that the quantity of cocaine consumed in the United States would have remained constant during this period if no changes in cocaine prices had occurred.3 The analysis also implicitly assumes that supply-control activities other than interdiction remain constant over time.
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From page 41... ...
The price-series data alone simply cannot reveal whether the prices fluctuations that the study attributes to the eight interdiction events should so be attributed or were instead due to other contemporaneous changes in market supply or demand. The Exponential Price Path The analysis that attributes price fluctuations to interdiction and the subsequent analysis of the cost-effectiveness of interdiction in reducing cocaine consumption rely on acceptance of the exponential price path displayed in Figure 5.
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From page 42... ...
Duration of Price Excursions The price excursions evaluated in the IDA study appear to be small in magnitude and short lived. None of the price changes that the IDA study attributes to interdiction events come close to the magnitude of the unexplained six-fold drop in price that took place between 1983 and 1990, presumably despite vigorous enforcement action.
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From page 43... ...
Numerous problems diminish the credibility of the cocaine price series developed in the study, and an absence of information prevents assessment of the procedure for selecting interdiction events.
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From page 44... ...
Numerous problems diminish the credibility of the cocaine price series developed in the study, and an absence of information prevents assessment of the procedure for selecting interdiction events.
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