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

https://doi.org/10.1016/j.drugpo.2013.12.004Get rights and content

Abstract

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.

Section snippets

Prices, costs and risks

The price of any commodity is expected to continually increase as the commodity moves from source to user. The first owner will sell his product at a price high enough to cover his own costs and eventually make some profit. That buyer will likely sell at a higher price, again to cover his own costs (which include the costs of the first owner) and make some profit, and so on. Costs are passed on to the next buyer, who passes them on to the next, etc. until the commodity reaches the final buyer –

Drug trafficking in the world-economy

Structure may, however, have a more subtle effect on commodity prices. It is expected that some countries will have more wealth than others due to differential access to raw materials, more effective production means, lower wages, etc. The world-system perspective argues that today's world-economy is a global trade network “built” on unequal political and economic agreements (Chase-Dunn, 1989, Chase-Dunn, 2002, Wallerstein, 1974, Wallerstein, 1979). The world-system argument is thus not only

Trade networks

A major contribution of the world-system perspective was to shift the focus of analysis from individual countries to the relations between them. Empirical tests of the world-system perspective then quickly used tools of social network analysis (SNA). A similar trend can be observed for drug trafficking: recent editions of the World Drug Report, a widely-cited annual publication by the United Nations Office on Drugs and Crime (UNODC), include a discussion of drug “flows” and “routes” between

Data and network construction

The primary data for this study was gathered together by the UNODC and covers a 10-year period from 1998 to 2007. The UNODC releases an overview of various indicators of drug trafficking and consumption in its annual report, World Drug Report. Most indicators are collected through an annual survey, the Annual Questionnaire Reports (ARQ), which is filled out by officials in different countries. In instances in which ARQ data are not available, the UNODC complements with data from other sources,

Limitations

As in any macro-level study, all variables are very rough measures of the concepts of interest. Furthermore, most data on drugs was collected through various annual surveys completed on a voluntary basis. Biases and errors (deliberate or not) are expected but difficult to document. Also, there is an important number of missing cases, especially for price data. In general, developed countries tend to provide more information than less developed countries, but there are exceptions. It was

Results and discussion

Consistent with the observations of Farrell et al. (1996) there is a statistically significant and positive correlation between prices for cocaine, heroin, and cannabis in a country; as a general rule, when one drug is high-priced in a given country, other drugs are also high-priced, suggesting that there is a set of common factors that explain drug prices. However, the correlations are sufficiently low to require further examination. Consequently, analyses are provided for three types of

Conclusion

Drug trafficking is an illegal activity that consists of multilateral exchanges of prohibited goods between producers, distributors, and consumers in a market-like context (Naylor, 2003). At the global level, drug trafficking is best conceived as a series of relations between countries. Network analysis naturally fits this relational definition; knowledge about drug trafficking is gained from the combination of cross-national and relational analyses.

This paper aimed to test propositions derived

Conflict of interest statement

No conflict of interest is declared.

Acknowledgements

This research was partly funded by a grant from the Social Sciences and Humanities Research Council (Government of Canada). The author would like to thank Pierre Tremblay and Carlo Morselli for their support, comments and suggestions throughout the research. The author would also like to acknowledge the contribution of anonymous reviewers.

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