A Simple Economic Model of Cocaine Production
This paper presents a simple equilibrium model of the cocaine industry in Peru, Bolivia, and Colombia. The purpose of the model is to represent the fundamental economic relations that determine the size of cocaine output, and to simulate the effects on the production sector of policy initiatives or other changes in the surrounding environment. Model results include: "Crop substitution" programs will have a negligible impact on the world cocaine market. Cocaine supply control strategies that seize and destroy 70% or less of production, without limiting the total level of production, will have little impact on the market. Changes in the size of the world cocaine market have a relatively modest long-run impact on the standard of living of average workers in Peru, Bolivia, and Colombia. The results of this study are insensitive to the data uncertainties concerning the cocaine market.