Dr. Todd Olmstead's Research on Price Elasticity of Demand for Heroin

Published:
April 8, 2016

ToddOlmstead

CHASP faculty associate and leading LBJ healthcare policy professor, Dr. Todd Olmstead, recently led a research team seeking to improve heroin addiction prevention and intervention solutions. Dr. Olmstead is also a Research Scholar at the Seton/University of Texas Southwestern Clinical Research Institute of Austin and has served as the health economist on several large NIH-funded grants in the area of behavioral health.

For this study, Dr. Olmstead and the research team aimed to understand how price variations influence a heroin user’s purchasing habits, otherwise known as the price elasticity of demand. They used a newly constructed sample of information about regular heroin users, matching longitudinal information about real-world heroin demand with experimental information about laboratory heroin demand. Their findings were published in the Journal of Health Economics: “The Price Elasticity of Demand for Heroin: Matched Longitudinal and Experimental Evidence.”

Abstract:

This paper reports estimates of the price elasticity of demand for heroin based on a newly constructed dataset. The dataset has two matched components concerning the same sample of regular heroin users: longitudinal information about real-world heroin demand (actual price and actual quantity at daily intervals for each heroin user in the sample) and experimental information about laboratory heroin demand (elicited by presenting the same heroin users with scenarios in a laboratory setting). Two empirical strategies are used to estimate the price elasticity of demand for heroin. The first strategy exploits the idiosyncratic variation in the price experienced by a heroin user over time that occurs in markets for illegal drugs. The second strategy exploits the experimentally induced variation in price experienced by a heroin user across experimental scenarios. Both empirical strategies result in the estimate that the conditional price elasticity of demand for heroin is approximately -0.80.

For the full article: http://dx.doi.org/10.1016/j.jhealeco.2015.01.008

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