What Drug Dealers Tell Us about Their Costs of Doing Business

Interviews with low-level drug dealers in New York City reveal that the monetary costs of distributing drugs are modest. Hence, the proportion of sales revenue retained by these sellers is a meaningful indicator of their earnings. There are four distinct types of sellers, with systematic differences across types in the proportion of sales revenue retained. Entrepreneurs who own the drugs they sell retain the largest share (about 50 percent). Independent consignment sellers retain less (about 25 percent). Consignment sellers who operate within fixed selling locations or “spots” retain still less (10 percent), and the sellers who were paid hourly to sell from spots retained the smallest proportion (3 percent). These differences might explain variation in reports of sellers' earnings and may have significant implications for the relative ability of enforcement against spots and enforcement against sellers operating outside of spots to drive up drug prices and suppress drug use.