, Volume 35, Issue 3, pp 303-314
Date: 04 Jul 2007

Are Illegal Drugs Inferior Goods in the US?

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Abstract

Using data from the National Survey on Drug Use and Health, evidence of income inferiority in illegal drug consumption is presented. This is done by estimation of binary choice probit models with endogenous regressors. The endogeneity of income with regard to drug consumption is considered and the more efficient three-stage least squares procedures have been implemented. In general, the results indicate that accounting for endogeneity improves results on income inferiority with regard to drug consumption. An implication of this study is that some form of income distribution policies towards the poor might be more effective in controlling substance abuse. It also points out the regressive nature of the government’s substance abuse program.

Another version of this paper was presented at the 2004 Southern Economic Association meetings held in New Orleans, Louisiana.