The War on Drugs is Counterproductive, Once Again

A two-sector general equilibrium model that included drugs as basic goods was relatively successful at explaining the waste of resources that the war on drugs incurs (Ortiz, 2003). Due to the assumption of constant productivity, the model predicted the rise of the drug price with supply repression. Yet Plan Colombia, an unparalleled effort to eradicate drug production in Colombia, had no significant effect on drug prices. In order to correct the model two sources of productivity improvement in the drugs sector are examined. The modified model helps to understand why drug prices have remained stable, why global supply and demand have not diminished, and why coca plantations were spread throughout the nation under Plan Colombia.