Risks, prices, and positions: A social network analysis of illegal drug trafficking in the world-economy.

BACKGROUND Illegal drug prices are extremely high, compared to similar goods. There is, however, considerable variation in value depending on place, market level and type of drugs. A prominent framework for the study of illegal drugs is the "risks and prices" model (Reuter & Kleiman, 1986). Enforcement is seen as a "tax" added to the regular price. In this paper, it is argued that such economic models are not sufficient to explain price variations at country-level. Drug markets are analysed as global trade networks in which a country's position has an impact on various features, including illegal drug prices. METHODOLOGY This paper uses social network analysis (SNA) to explain price markups between pairs of countries involved in the trafficking of illegal drugs between 1998 and 2007. It aims to explore a simple question: why do prices increase between two countries? Using relational data from various international organizations, separate trade networks were built for cocaine, heroin and cannabis. Wholesale price markups are predicted with measures of supply, demand, risks of seizures, geographic distance and global positioning within the networks. Reported prices (in $US) and purchasing power parity-adjusted values are analysed. RESULTS Drug prices increase more sharply when drugs are headed to countries where law enforcement imposes higher costs on traffickers. The position and role of a country in global drug markets are also closely associated with the value of drugs. Price markups are lower if the destination country is a transit to large potential markets. Furthermore, price markups for cocaine and heroin are more pronounced when drugs are exported to countries that are better positioned in the legitimate world-economy, suggesting that relations in legal and illegal markets are directed in opposite directions. CONCLUSION Consistent with the world-system perspective, evidence is found of coherent world drug markets driven by both local realities and international relations.

[1]  N. Morris,et al.  Crime and justice : an annual review of research , 1980 .

[2]  Siddharth Chandra,et al.  Inferring Cocaine Flows across Europe: Evidence from Price Data , 2011 .

[3]  Jonathan P Caulkins,et al.  Price and purity analysis for illicit drug: data and conceptual issues. , 2007, Drug and alcohol dependence.

[4]  Rémi Boivin,et al.  Le monde à l'envers : analyse de la structure du trafic transnational de drogues illicites , 2011 .

[5]  Jonathan H. Turner,et al.  Handbook of sociological theory , 2001 .

[6]  Jonathan P. Caulkins,et al.  How Drug Enforcement Affects Drug Prices , 2010, Crime and Justice.

[7]  D. Hobbs.  Going Down the Glocal: The Local Context of Organised Crime , 1998 .

[8]  L. Freeman,et al.  Centrality in valued graphs: A measure of betweenness based on network flow , 1991 .

[9]  D. Lederman,et al.  Accountability and Corruption: Political Institutions Matter , 2001 .

[10]  Carlo Morselli,et al.  Crime and Networks , 2013 .

[11]  P. Grauwe,et al.  The cocaine and heroin markets in the era of globalisation and drug reduction policies. , 2009 .

[12]  Paul De Grauwe,et al.  Globalization and the price decline of illicit drugs , 2009 .

[13]  J. Caulkins,et al.  What Price Data Tell Us about Drug Markets , 1998 .

[14]  Jonathan P. Caulkins,et al.  Illicit drug markets and economic irregularities , 2006 .

[15]  R. Weisheit.  Domestic Marijuana: A Neglected Industry , 1992 .

[16]  K. Head,et al.  The Puzzling Persistence of the Distance Effect on Bilateral Trade , 2004 .

[17]  Lorraine Mazerolle,et al.  Drug Law Enforcement , 2007 .

[18]  Jeffrey A. Frankel,et al.  The Regionalization Of The World Economy , 1997 .

[19]  David A. Smith,et al.  Structure and Dynamics of the Global Economy: Network Analysis of International Trade 1965–1980 , 1992 .

[20]  Peter Reuter,et al.  The World Heroin Market: Can Supply Be Cut? , 2009 .

[21]  Damián Zaitch,et al.  Trafficking Cocaine: Colombian Drug Entrepreneurs in the Netherlands , 2002 .

[22]  I. Wallerstein,et al.  The Modern World-System: Capitalist Agriculture and the Origins of the European World-Economy in the Sixteenth Century. , 1975 .

[23]  G. Farrell,et al.  COCAINE AND HEROIN IN EUROPE 1983–93 A Cross-national Comparison of Trafficking and Prices , 1996 .

[24]  S. Borgatti,et al.  Betweenness centrality measures for directed graphs , 1994 .

[25]  Alex Stevens,et al.  Understanding drug markets and how to influence them , 2008 .

[26]  P. Keefer,et al.  The Development Impact of the Illegality of Drug Trade , 2008 .

[27]  Peter Reuter,et al.  Risks and Prices: An Economic Analysis of Drug Enforcement , 1986, Crime and Justice.

[28]  J. Lambsdorff.  The Institutional Economics of Corruption and Reform: Theory, Evidence and Policy , 2007 .

[29]  Jeffrey S. DeSimone,et al.  The Relationship between Illegal Drug Prices at the Retail User and Seller Levels , 2006 .

[30]  Vladimir Batagelj,et al.  Exploratory Social Network Analysis with Pajek , 2005 .

[31]  C. Chase-Dunn.  World-Systems Theorizing , 2001 .

[32]  Scott H. Decker,et al.  The organizational structure of international drug smuggling , 2010 .

[33]  Rema Padman,et al.  Quantity Discounts and Quality Premia for Illicit Drugs , 1993 .

[34]  Howard League for Penal Reform.  The Howard journal , 1921 .

[35]  From Cali to Rotterdam: Perceptions of Colombian cocaine traffickers on the Dutch port , 2002 .

[36]  J. Dijk.  The World of Crime: Breaking the Silence on Problems of Security, Justice and Development Across the World , 2007 .

[37]  P. Reuter,et al.  Measuring Global Drug Markets , 2001 .

[38]  E. Kick,et al.  Structural Position in the World System and Economic Growth, 1955-1970: A Multiple-Network Analysis of Transnational Interactions , 1979, American Journal of Sociology.

[39]  I. Wallerstein,et al.  The Capitalist World-Economy , 1979 .

[40]  Tom Decorte,et al.  World Wide Weed: Global Trends in Cannabis Cultivation and its Control , 2011 .

[41]  Frédéric Ouellet,et al.  Is small beautiful? The link between risks and size in illegal drug markets , 2011 .

[42]  Matthew C. Mahutga.  The Persistence of Structural Inequality?: A Network Analysis of International Trade, 1965-2000 , 2006 .

[43]  Scott H. Decker,et al.  Measuring the deterrent effect of enforcement operations on drug smuggling, 1991–1999 , 2002 .

[44]  Rodrigo R. Soares.  Development, crime and punishment: accounting for the international differences in crime rates , 2004 .

[45]  C. Chase-Dunn,et al.  World-Systems Analysis , 1995 .

[46]  P. Reuter.  World drug report , 1998 .

[47]  W. Hall,et al.  Heroin use in New South Wales, Australia, 1996-2000: 5 year monitoring of trends in price, purity, availability and use from the Illicit Drug Reporting System (IDRS). , 2002, Addiction.

[48]  Stephen P. Borgatti,et al.  Centrality and network flow , 2005, Soc. Networks.

[49]  Carlo Morselli,et al.  Inside Criminal Networks , 2008 .

[50]  W. Beckerman,et al.  Distance and the pattern of intra-European trade , 1956 .

[51]  P. Gottschalk,et al.  Cross-National Comparisons of Earnings and Income Inequality , 1997 .

[52]  R. Naylor,et al.  TOWARDS A GENERAL THEORY OF PROFIT-DRIVEN CRIMES , 2003 .

[53]  J. Caulkins.  Domestic Geographic Variation in Illicit Drug Prices , 1995 .