The Incentives and Consequences of Drug Trafficking

Emilia Marroquin — Honorbound

In Mario Berlanga’s talk on the market of illegal drugs, he mentions, “there are two kinds of people in this world: those who consume illegal drugs and those who know someone who does.”[1] Drugs dominate over 70% of the U.S. market; therefore, American consumers have spent about 750 billion dollars on drugs. Why? Well, for the majority of those people, drugs maximize their utility; it makes them “happy”. Charles Wheelan explains this concept of maximizing utility as “individuals acting to make themselves as well off as possible.”[2] Because of this, economics becomes amoral leading to moral or immoral incentives; that’s where drug trafficking comes in.

Because Mexico has a free enterprise system, with little government intervention, people, who are motivated to make themselves better off, have incentives to create a market, in this case, a market for illegal drugs. Mexico has one of the biggest drug trafficking markets in the world. Why?  “Because it’s profitable.”[2] Just like Mark Zuckerberg maximized his utility by creating a billion dollar social media site, “El Chapo” Guzman maximized his own utility by participating in a billion dollar illegal drug market. The difference? While they were both trying to make themselves better off, one of them didn’t kill hundreds of people in order to get what he wanted. However that didn’t stop thousands of addicts from consuming the product: they either didn’t know or didn’t care. This is what helps the illegal drug market to keep growing without any government involvement impeding its immoral processes.  And that’s the problem that Mario Berlanga highlights in his speech. He says “the business transaction between a dealer and the consumer is a victimless crime…but…the dealers need to be connected to a cartel.”[1] What used to be a “victimless crime”[1] is now a profit maximizer for drug trafficking and creates a negative externality, “cases in which individuals or firms engage in private behavior that has broader social consequences,”[2] which costs people’s families, jobs, and lives.

Almost all drug users are unbeknownst to the consequences of their transactions. What good does it do to a dealer if they casually said, “Dude, buy these drugs and you can help my boss kill three people.” It lowers the demand and in the end destroys the market, and unfortunately, most of Mexico’s economy is drug trafficking, if it fails so do the people. I can guarantee that more than half of those involved in the business do not want to be in it. One woman states in the New York Times, “It makes me sick that I’m essentially in business with these guys.”[3] But she can’t get out because if she does, she gets killed. It’s a double-edged sword. Nevertheless, action needs to be taken to stop this market from expanding. As of now the market is too big to stop the trafficking because, as Wheelan states, “criminals are some of the most innovative folks around.”[2] They’ll always find a way to transport their drugs, but if the consumers lose interest and start to buy substitute products like legal weed or alcohol, the demand will decrease for illegal drugs. This is one of several possible solutions to this problem. And now’s the time to initiate these solutions in the real world and to stop the narcos from doing more damage.


[1] Stanford Graduate School of Business. “Mario Berlanga: Pulling Down the Curtain: The Truth about the Supply Chain of Illegal Drugs.” YouTube. June 01, 2016. Accessed June 15, 2016. https://www.youtube.com/watch?v=oM9ccvPXq1I

[2] Wheelan, Charles J. Naked Economics: Undressing the Dismal Science. New York: Norton, 2010.

[3] Lacey, Marc. “From Cartel to Corporation: Drug Trade Economics.” Economix. June 7, 2010. Accessed June 15 http://economix.blogs.nytimes.com/2010/01/07/from-cartel-to-corporation-the-economics-of-the-drug-trade/?_r=1

Fig. 1. CBS/AP. “Drugs and Weapons Seized, Mexico Flag.” Digital image. CBS News. February 9, 2012. Accessed June 15, 2016. http://www.cbsnews.com/news/15-tons-of-pure-meth-seized-in-mexico/

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