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To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmateco.2010.08.021 Byline: Jonathan P. Caulkins (a), Richard F. Hartl (b), Peter M. Kort (c)(d) Keywords: Capital accumulation; Delayed response; Time-to-build; Time-to-install/deliver; Optimal control Abstract: We study delays in capital accumulation models. Our contribution is threefold. First, we identify a class of models that can be transformed into standard optimal control models without delay. Second, in the single state versions of these models the state trajectory is monotonic in the optimal solution. This is noteworthy given the common belief that adding delays facilitates oscillatory behavior of capital, output and investment. Third, we identify an equivalence result between time-to-install/deliver problems and time-to-build problems. Author Affiliation: (a) Carnegie Mellon University, Qatar Campus, Heinz College's School of Public Policy & Management, School of Information Systems & Management, 5000 Forbes Ave, Pittsburgh, PA 15213, USA (b) University of Vienna, School of Business, Economics, and Statistics, Bruennerstrasse 72, A-1210 Vienna, Austria (c) Tilburg University, Department of Econometrics & Operations Research and CentER, P.O. Box 90153, NL-5000 LE Tilburg, The Netherlands (d) Department of Economics, University of Antwerp, Prinsstraat 13, 2000 Antwerp 1, Belgium Article History: Received 25 March 2010; Revised 8 July 2010; Accepted 30 August 2010 Article Note: (footnote) [star] The authors like to thank an associate editor, two anonymous reviewers, Mauro Bambi, Raouf Boucekkine, Gustav Feichtinger, and Omar Licandro for their helpful comments.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jedc.2006.05.008 Byline: Jonathan P. Caulkins (a), Richard F. Hartl (b), Peter M. Kort (c)(d), Gustav Feichtinger (e) Abstract: This paper considers the problem of a fashion trend-setter confronting an imitator who can produce the same product at lower cost. A one-dimensional product space is considered, which is an abstraction of the key attribute of some consumer good. Three broad strategies can be optimal for the fashion-leader: (1) never innovate, which milk profits from the initially advantageous position but ultimately concede the market without a fight. (2) Innovate once but only once, which just temporarily defers conceding the market. (3) Cycle infinitely around product space, never letting the imitator catch up and capture the market. Sometimes the cycles start immediately; sometimes the innovator should wait for a time before beginning the cycles. The optimal solution exhibits strong state-dependency, with so-called Skiba curves separating regions in state space where various of these strategies are optimal. There are even instances of intersecting Skiba curves. In most cases, analytical expressions can be stated that characterize these Skiba curves. Author Affiliation: (a) Carnegie Mellon University, H. John Heinz III School of Public Policy & Management, Pittsburgh,PA, USA (b) Department of Business Studies, University of Vienna, Vienna, Austria (c) Department of Econometrics and Operations Research & CentER, Tilburg University, P.O. Box 90153, 5000 LE Tilburg, The Netherlands (d) Department of Economics, University of Antwerp, Antwerp, Belgium (e) Department of Operations Research and Nonlinear Dynamical Systems, Institute for Mathematical Methods in Economics, Vienna University of Technology, Vienna, Austria Article History: Received 20 July 2005; Accepted 23 May 2006

A dynamic optimization model of controlled migration with a Skiba point is presented for a major challenge of United States housing policy.

An evaluation of policy effects on air pollution control techniques by electric utilities reveals that Public Utility Commission regulations can affect Clean Air Act implementation outcomes. The study reveals that incentives combined with 'cost-plus' compliance can increase social costs of compliance significantly. However, the effects do not undermine the principal goal of air quality management policies.

The geographic variation of the prices of illicit drugs in the US is investigated. It is hypothesized that prohibited drugs become more expensive as one moves farther away from the source of these drugs as a result of weak information flows and major lateral transaction costs. It is also conjectured that the prices of unlawful drugs are negatively related to market size because of economies of scale. To test these assumptions, a survey of law enforcement agencies is administered by the Middle Atlantic-Great Lakes Organized Crime Law Enforcement Network in 1991. Participants are required to indicate three actual drug purchases made by their offices, including the quantity and type of drug. Results generally support the two hypotheses.

Background and Aims In 2014 the legislature of Vermont, USA passed a law requiring the Secretary of Administration to report on the consequences of legalizing marijuana. The RAND Corporation was commissioned to write that report. This paper summarizes insights from that analysis that are germane to other jurisdictions. Method Translation of key findings from the RAND Corporation report to the broader policy debate. Results Marijuana legalization encompasses a wide range of possible regimes, distinguished along at least four dimensions: which organizations are allowed to produce and supply the drug, the regulations under which they operate, the nature of the products that can be distributed and taxes and prices. Vermont's decriminalization had already cut its costs of enforcing marijuana prohibition against adults to about $1 per resident per year. That is probably less than the cost of regulating a legal market. Revenues from taxing residents' purchases after legalization could be many times that amount, so the main fiscal cost of prohibition after decriminalization relative to outright legalization may be foregone tax revenues, not enforcement costs. Approximately 40 times as many users live within 200 miles of Vermont's borders as live within the state; drug tourism and associated tax revenues will be important considerations, as will be the response of other states. Indeed, if another state legalized with lower taxes, that could undermine the ability to collect taxes on even Vermont residents' purchases. Conclusions Analysis of possible outcomes if Vermont, USA, legalized marijuana reveal that choices about how, and not just whether, to legalize a drug can have profound consequences for the effects on health and social wellbeing, and the choices of one jurisdiction can affect the options and incentives available to other jurisdictions. [ABSTRACT FROM AUTHOR]

Multiple layers of dealers connect international drug traffickers to users. The fundamental activity of these dealers is buying from higher-level dealers and re-selling in smaller quantities at the next lower market level. Each instance of this can be viewed as completing a drug dealing "cycle". This paper introduces an approach for combining isolated accounts of such cycles into a coherent model of the structure, span, and profitability of the various layers of the domestic supply chain for illegal drugs. The approach is illustrated by synthesizing data from interviews with 116 incarcerated dealers to elucidate the structure and operation of distribution networks for cocaine and heroin in Italy and Slovenia. Inmates' descriptions of cycles in the Italian cocaine market suggest fairly orderly networks, with reasonably well-defined market levels. The Italian heroin market appears to have more "level-jumpers" who skip a market level by making a larger number of sales per cycle, with each sale being of a considerably smaller weight. Slovenian data are sparser, but broadly consistent. Incorporating prices allows calculation of how much of the revenue from retail sales is retained by dealers at each market level. In the Italian cocaine market, both retail sellers and the international supply chain outside of Italy each appear to receive about 30-40% of what users spend, with the remaining 30% going to higher-level dealers operating in Italy (roughly 10% to those at the multi-kilo level and 20% to lower level wholesale dealers). Factoring in cycle frequencies permits rough estimation of the number of organizations at each market level per billion euros in retail sales, and of annual net revenues for organizations at each level. These analyses provide an approach to gaining insight into the structure and operation of the supply chain for illegal drugs. They also illustrate the value of two new graphical tools for describing illicit drug supply chains and hint at possible biases in how respondents describe their drug dealing activities. [ABSTRACT FROM AUTHOR]

Aims Drug policy strategies and discussions often use prevalence of drug use as a primary performance indicator. However, three other indicators are at least as relevant: the number of heavy users, total expenditures and total amount consumed. This paper stems from our efforts to develop annual estimates of these three measures for cocaine (including crack), heroin, marijuana and methamphetamine in the United States. Methods The estimates exploit complementary strengths of a general population survey ( National Survey on Drug Use and Health) and both survey and urinalysis test result data for arrestees ( Arrestee Drug Abuse Monitoring Program), supplemented by many other data sources. Results Throughout the 2000s US drug users spent in the order of $100 billion annually on these drugs, although the spending distribution and use patterns changed dramatically. From 2006 to 2010, the amount of marijuana consumed in the United States probably increased by more than 30%, while the amount of cocaine consumed in the United States fell by approximately 50%. These figures are consistent with supply-side indicators, such as seizures and production estimates. For all the drugs, total consumption and expenditures are driven by the minority of users who consume on 21 or more days each month. Conclusions Even for established drugs, consumption can change rapidly. The halving of the cocaine market in five years and the parallel (but independent) large rise in daily/near-daily marijuana use are major events that were not anticipated by the expert community and raise important theoretical, research, and policy issues. [ABSTRACT FROM AUTHOR]

ABSTRACT Aims No modern jurisdiction has ever legalized commercial production, distribution and possession of cannabis for recreational purposes. This paper presents insights about the effect of legalization on production costs and consumption and highlights important design choices. Methods Insights were uncovered through our analysis of recent legalization proposals in California. The effect on the cost of producing cannabis is largely based on existing estimates of current wholesale prices, current costs of producing cannabis and other legal agricultural goods, and the type(s) of production that will be permitted. The effect on consumption is based on production costs, regulatory regime, tax rate, price elasticity of demand, shape of the demand curve and non-price effects (e.g. change in stigma). Results Removing prohibitions on producing and distributing cannabis will dramatically reduce wholesale prices. The effect on consumption and tax revenues will depend on many design choices, including: the tax level, whether there is an incentive for a continued black market, whether to tax and/or regulate cannabinoid levels, whether there are allowances for home cultivation, whether advertising is restricted, and how the regulatory system is designed and adjusted. Conclusions The legal production costs of cannabis will be dramatically below current wholesale prices, enough so that taxes and regulation will be insufficient to raise retail price to prohibition levels. We expect legalization will increase consumption substantially, but the size of the increase is uncertain since it depends on design choices and the unknown shape of the cannabis demand curve. [ABSTRACT FROM AUTHOR]

California nearly legalized commercial marijuana production in 2010; in coming years, other states and California are expected to entertain similar proposals. This raises the question of whether marijuana diverted from legal production could displace current sources of marijuana in other states. Combining prior estimates of legal production cost with new estimates of the cost of smuggling within the United States suggests that in most states, diverted legal production would substantially undercut current prices. So, if one state legalized, then (illegal) interstate "exports" could depress marijuana prices throughout the United States, even if taxes are collected before diversion and export. The authors proxy smuggling costs by the current gradient in prices observed for Mexican or commercial-grade marijuana; based on seven different data sets, it appears to be roughly US$325 to US$475 per pound per 1,000 miles as one moves north from the Mexican border. [ABSTRACT FROM AUTHOR]

In September 1989, amid an emotional and ideological debate regarding problematic drug use in the United States and the 'war on drugs', RAND's Drug Policy Research Center (DPRC) was created through private foundation funds. The purpose of this new research center was to provide objective empirical analysis on which to base sound drug policy. Twenty years later, RAND's DPRC continues its work, drawing on a broad range of analytical expertise to evaluate, compare and assess the effectiveness of a similarly broad range of drug policies. More than 60 affiliated researchers in the United States and Europe make up the Center, which attempts to provide objective empirical analyses to better inform drug policies within the United States and abroad. This paper provides a look back at the creation, evolution and growth of the Center. It then describes how the Center operates today and how it has maintained its clear identity and focus by drawing on the analytical capabilities of a talented group of researchers from a broad range of academic disciplines. [ABSTRACT FROM AUTHOR]

Aims The addiction sciences are intrinsically multi-disciplinary, and economics is among the disciplines that offer useful perspectives on the complex behaviors surrounding substance abuse. This paper summarizes contributions economics has made in the past and could make in the future towards understanding how illegal markets operate, how prices affect use, how use generates various consequences, and how policy shapes all three. Methods Review of literature, concentrating on illegal drugs as insights concerning markets are particularly salient, although we also mention relevant studies from the alcohol and tobacco fields. Findings and Conclusions Economics offers tools and topical expertise that usefully complement other disciplines associated traditionally with the addiction sciences. Its value goes far beyond the ability to monetize non-monetary outcomes or to calculate a cost-benefit ratio. [ABSTRACT FROM AUTHOR]

Abstract: Drug producing regions often supply several geographically distinct drug consumption markets. Disruptions of opium cultivation in Afghanistan and cocaine production in Colombia show that consumption reductions can be much smaller in some final markets than are reductions in cultivation. This paper derives a model for predicting how production deficits will be “allocated” across downstream markets in the form of reduced use. Plausible parameterization suggests that for cocaine, markets outside the US may serve as a sort of “shock absorber”, partially shielding US markets from sharp fluctuations in consumption. One implication is that multi-lateral efforts may be appropriate for source country control. [Copyright &y& Elsevier]

Abstract: We develop a dynamic optimal control model of a fashion designer''s challenge of maintaining brand image in the face of short-term profit opportunities through expanded sales that risk brand dilution in the longer-run. The key state variable is the brand''s reputation, and the key decision is sales volume. Depending on the brand''s capacity to command higher prices, one of two regimes is observed. If the price markups relative to production costs are modest, then the optimal solution may simply be to exploit whatever value can be derived from the brand in the short-run and retire the brand when that capacity is fully diluted. However, if the price markups are more substantial, then an existing brand should be preserved. It may even be worth incurring short-term losses while increasing the brand''s reputation, even if starting a new brand name from scratch is not optimal. [Copyright &y& Elsevier]

We present a two-state, one-control model of a seller's decision about how good a "deal" to give customers when price and quantity are observable, but the customer does not observe quality until after committing to the transaction, so the quality of the bargain affects future demand only indirectly by influencing the reputation of the seller. This situation describes well the markets for many illicit drugs. Analysis reveals two optimal strategies: converging to a unique steady state with a positive sales volume or exploiting the initial customer base by selling cut-rate products until the seller's reputation is so bad that sales go to zero. Numerical analysis with parameters based on the U.S. cocaine market shows that there is a so-called Dechen-Nishimura-Skiba (DNS) curve in the state space, where the seller is indifferent between these two strategies. Convergence to the steady state with positive sales is oscillatory. Because different sellers may be at different phases of the oscillation at any given time, this oscillation implies that a population of homogenous sellers can generate dispersion in market prices--a phenomenon characteristic of drug markets that has been difficult to explain. [ABSTRACT FROM AUTHOR]

Abstract: Markets for illicit drugs present an interesting case study for economics, combining non-standard characteristics such as addiction and product illegality. One response has been to argue the generality of economic principles by suggesting that they apply even in the extreme case of markets for addictive substances, e.g., by showing that demand for illicit goods is responsive to price [Reframing health behavior change with behavioral economics. Hillsdale, NJ:Lawrence Earlbaum Associates; 2000. p. 89–111.] and even by modeling addiction as rational [J Political Econ 1988;96:675–700]. This paper sketches examples of an alternative reaction, focusing on idiosyncrasies of drug markets that might plausibly create counter-intuitive effects, including supply curves that slope downward because of enforcement swamping and/or a good serving as the only available store of wealth for its producer, demand reduction programs that increase demand, and consumption by “jugglers” possibly increasing rather than decreasing as prices rise. This analysis yields non-obvious policy recommendations; for example, source country control programs should concentrate on growing regions with a healthy banking sector. [Copyright &y& Elsevier]

This paper reviews empirical evidence on drug prices and discusses implications for understanding of drug markets and for policy. The most striking characteristics of drug prices are their high levels and extreme variability over time and space. High prices deter consumption but have ambiguous effects on drug-related crime. The consequences of the variability are largely unexplored and are difficult to determine. Conclusions are mixed with respect to the ability of policy to influence prices. Prohibition plus some degree of enforcement can drive prices far above what they would be if drugs were legal. In certain circumstances, additional severity of enforcement can create transient spikes in price or alter the source of drugs by driving up prices from one source relative to another. However, increasing enforcement over and above an already strongly enforced prohibition appears to have only limited ability to drive prices up further. [ABSTRACT FROM AUTHOR]

A response is provided to articles in the same issue of the journal which address additional data sources for cannabis markets, the legalization of the cannabis industry, and changes in cannabis policies as of 2017. The economic profitability of marijuana as a commodity is examined, along with the structure, performance, and conduct of an industrial organization. Company loyalty and frequent buyer programs are assessed, along with data mining and smart vaporizer pens.

Commentary to: Considering marijuana legalization carefully: insights for other jurisdictions from analysis for Vermont [ABSTRACT FROM AUTHOR]

In this article Jonathan P. Caulkins, Beau Kilmer, Peter H. Reuter and Gregory Midgette respond to commentaries within the issue which focus on their article "Cocaine’s Fall and Marijuana’s Rise: Questions and Insights Based on New Estimates on Consumption and Expenditures in US Drug Markets". In the article they offer opinions on several points which are raised within the commentaries and on several aspects of their own article which are discussed in the commentaries.

The author discusses the article by Peter Reuter and Harold Pollack on the relationship between drug prices and enforcement intensity. He mentions that the empirical evidence speaks just to the failures of the past practice of enforcement, and enforcement has not optimized in producing the maximal effect on prices. He states that law enforcement does not frequently think in terms of maximization of social welfare or efficient production with respect to prices or objective function.

In this article, researcher Johnathan P. Caulkins responses to the commentatries made on his study related to the issue of legalizating cannabis. He mentions that his study focused on design choices for implementing legalization of cannabis. He also mentions that the production costs after legalization process can drop below the current wholesale prices. Further he mentions the Kettil Bruun Society has reveals the difficuties in regulation right for drugs as they have been conforting the nuances of alcohol control for 25 years.

Abstract: Drug demand responds slowly to exogenous shocks because it is dominated by dependent users whose behaviours are slow to change. Hence, although the cumulative effect of the global recession may be large, it is not likely to produce an abrupt step-change in indicators driven by dependent use or total consumption. [Copyright &y& Elsevier]