The effect of cocaine prices on crime

The relationship between cocaine prices and crime has critical implications for US. drug policy, but is theoretically indeterminate because cocaine pr ice changes affect crime through changes in both cocaine consumption and ex penditures. This paper investigates this relationship in annual data from 1 981-95 on 29 large US. cities, accounting for simultaneity by using two-sta ge least squares with measures of wholesale supply factors and retail enfor cement intensity as instruments for cocaine prices. Controlling for prices of other drugs, deterrence, socioeconomic factors, and city and year-specif ic effects, a strong negative relationship exists between cocaine prices an d six of seven FBI index crimes.