Demand and supply of opiates in an unregulated market

Abstract

Purpose The purpose of this paper is to estimate the demand and supply of opiates in the USA during the period 1870–1914 when the market was virtually unregulated. Design/methodology/approach The price and quantity of opiates is econometrically estimated using a data set constructed primarily from pharmaceutical trade journals. Findings Per capita opiate consumption varies in inverse proportion to its price, a price elasticity of demand of unity. The supply of opiates to the USA is perfectly elastic, a horizontal line, implying the USA was a “price-taker” in the world market for opium. The number of medical schools, a proxy for the state of medical science, significantly effects opiate consumption, as does the import tariff on opium. Research limitations/implications Opiate use, both medicinal and addictive, is highly responsive to purely the economic forces of price and income. The influential role of the medical profession in shaping the pattern of consumption is confirmed. Data limitations prevent making substantive statements about usage of the various sub-categories of opium, requiring all opium to be treated as equivalent units of morphine sulfate. Practical implications Decriminalized access to opiates and other addictive substances is likely to result in a significant increase in usage, which could be controlled by taxation. Originality/value Prior studies of unregulated opiate demand and supply have covered Indonesia and Taiwan under colonial government monopoly, not a major western country user like the USA. Also, this paper uses a newly created consistent set of inflation-adjusted opiate prices covering a long period (1870–1914).