Economic issues in a trial of the controlled provision of heroin

Executive Summary: This paper discusses some economic issues that may be investigated as part of a proposed trial of the controlled provision of heroin in the Australian Capital Territory. Such a trial would provide an opportunity to gather empirical evidence on some aspects of the operation of the market for heroin. Specifically, it would enable the investigation of the extent to which purity, rather than price, is the equilibrating mechanism in this market. If purity is an important equilibrating mechanism, then provision of heroin of constant purity to trial participants would yield important health benefits to those participants. However, if purity on the black market is increased in economic retaliation against a trial, there may be unintended adverse effects on the health of black market users in the short run. In the long run, stabilisation of purity on the black market may be associated with an improvement in the health status of non-trial users. An important issue that cannot be addressed in the context of the proposed trial is the price elasticity of demand for heroin, that is, the responsiveness of demand for heroin to a change in its price. The use of pre–specified criteria to determine eligibility for participation in a trial will preclude any estimation of the increase in demand for heroin attributable to a fall in its price.