Drug Control Regimes: Cigarettes on the Street

Today's New York Times features a piece detailing the black market for loosies on New York streets. Single cigarette sales are illegal in New York under state law. The market for loosies has soared along with prices for a pack.

The basic economic reality of cigarette taxes are clear: at a fairly low price point, a black market springs up to service demand for cigarettes. A legally bought cigarette, which comes in a pack of twenty, are quickly supplanted by either smaller-packaged cigarillos, usually coming in 6 per pack or the illegally sold loosies. Basic microeconomic models suggest that adding a tax to the manufacturer-determined price should knock out a certain segment of the market from affording the habit of smoking. That is the simple public health rationale behind sin taxes on liquor and cigarettes.

This simplistic model fails to take into account the ability of black market or grey market suppliers from poaching that pool of demand. The addicts who are priced out of their substance of choice are far more motivated to seek out a replacement market than purchasers of normal goods, making the market far more fluid, as well as making the demand relatively inelastic. Even price-control regimes such as tariffs and excise taxes introduce the problems of prohibition. The economic opportunity benefits undesirable elements of the society who benefit from a lack of state regulation. For public policy scholars interested in drug control regimes, I would recommend Alfred R Lindesmith's The Addict and the Law, a sociological review of post-World War II opium control regimes in the Pacific, the United States, and England.
Addict and the Law