Law Enforcement and Bargaining over Illicit Drug Prices: Structural Evidence from a Gang’s Ledger

Abstract We estimate a structural model of bargaining between a branch of a large transnational gang and pushers using data from detailed records kept by the gang. The model allows for the gang’s relative bargaining power to differ for pushers with different characteristics, such as those with addictions or borrowing problems. Exploiting supply shocks in our data, we use the estimated model to study the effectiveness of various enforcement strategies. We find that targeting pushers is more effective at reducing quantities sold compared to targeting the gang’s upstream supply chain.