"As long as brothers are selling drugs, they're going to be shooting because people are jealous that they don't have the money and gold and stuff like that," said Joe Lindsey, a tall, slim 19-year-old with a heavy chain around his neck. "It ain't going to cool down," he said. "It ain't going to cool down."1

Introduction

More people are killed in Washington, D.C., per capita, than any other city in the country, and the total rises every year. The 1989 total of 438 surpassed the 1988 total of 371, and the 1990 has brought us even more bloodshed. About half of the homicides are believed to be connected with illegal drug trafficking, and as law enforcement efforts intensify, so does violence. Notorious cocaine dealer Rayful Edmond 2 was apprehended, but that did not abate the escalating violence. The parallel between today's crack gangs and prohibition's bootleggers suggests that the violence is linked — that the illegality of the drug trade, not to the psychological effects of drugs, leads to violence.

If murder is related to illegality, it should be possible to explain both why the drug dealers kill each other, and what effect the high murder rate has on the price structure of the illegal market. In a competitive industry, price and income equal costs, including the expected costs of any assumed risks. In an illegal enterprise, income must compensate for opportunity costs — what the participant could earn in legitimate work, and for costs necessitated by the illegal enterprise. Costs include actual costs, for the product, planes, look-outs, body and money guards, etc., and associated risks: that the dealer will be apprehended and imprisoned, killed by another dealer, or injured. But even these risks do not tell the whole story, because when one dealer is killed or injured another dealer killed or injured him and may be imprisoned, not for selling drugs, but for murder or assault.

It should be possible to construct a model to estimate the drug dealers incomes and compare them to costs. In Part 2, I will describe the drug distribution chain, the price and purity of cocaine in different quantities, the interrelationships between the dealers at different levels, and recent changes in those relationships. In Part 3, I will construct a model by measuring the profits on each transaction (the purchase of a quantity of cocaine, possibly cutting it, and dividing it up into several smaller packages for sale). The total price of the small packages, less the price paid for the original quantity, makes up the dealers gross profit. The net profit is determined by subtracting the dealers out-of-pocket costs for such items as airplanes, body guards, guns, lawyers, bribes to law enforcement etc. Next, the number of dealers and the number of transactions each dealer performs per year is used to estimate total yearly net income.

In Part 4, an hypothesis will be studied to determine if the cocaine industry operates like a competitive industry. Net income should be related to opportunity costs, plus the expected cost of death or serious injury, or punishment for selling drugs, or inflicting death or serious injury on another. Probability determines the expected costs of events (incarceration, injury, and murder) whose chance of occurrence is less than one. In Part 5, incomes and opportunity costs calculated in Part 4 will be examined for reasonableness to test the hypothesis. Part 6 discusses the implications of these findings on public policy.

The Distribution Chain

The structure of the cocaine distribution system has been studied through interviews with incarcerated dealers,3 and observations of law enforcement personnel.4 Drugs do not pass through many hands between the importer and the consumer:

"Dealers to whom we spoke who were not themselves importers either bought directly or at only one remove (sic] from importers of large quantities, and they sold to retailers whose own customers were either strictly consumers of else very small retailers."5

At the wholesale level, the market is national with dealers willing to travel to service a good customer or purchase from a good source.6 Several U.S. cities,7 mostly in southern Florida and California, are entry points where cocaine is smuggled in directly from Columbia or the Caribbean and is cheaper than in other cities. Wholesalers generally purchase cocaine at the entry points and then transport it to other cities to be sold retail, in kilograms and ounces.8 Retail markets are local with great variation in the competitive price and level of purity.

The market is highly organized, with many participants working as employees of successful operators rather than free-lance dealers.9 Some organizations are highly structured and corporate, with employees performing specific tasks such as collecting money,10 and looking out for police.11 The independent dealers, who make a living by buying from a supplier and selling to their customers, may have access to only a single source of supply. The number of dealers per supplier is unknown and there does not appear to be any rule of thumb other than the Reuter inmate study, which estimated six dealer customers per wholesaler.12 Street level crack dealers, however, sell crack to anyone and everyone who comes along, and sometimes they cheat them, selling them soap or some other substitute. At any level, revolving credit is the custom, with each lot "fronted", or paid for only after it is sold and a new lot provided.

Developing a Model

The model proposed here is a simple one. I am going to make some assumptions on the market structure of the drug industry and calculate what the competitive level of prices should be. It is assumed that all dealers sell their product at prices which are identical to those of other dealers selling cocaine in similar amounts. It is assumed that a perfect pyramid exists, with each dealer selling cocaine in equal quantities to exactly six dealers in the next lower level.13 Each dealer is acting independently with few hirelings, and each is uninvolved with activities at other levels.14

The market structure is described in an equation relating income to opportunity costs and the costs of risking incarceration (for drugs, murder, or assault), injury and murder, to evaluate whether or not the price structure can be explained in such terms. The model is first tested by estimating yearly incomes from actual prices at various levels in the distribution network. Prices are only estimates, because they vary tremendously from region to region and even within a region depending on the level of purity, and with whom a participant is dealing.15 However, the prices and distribution system described here is a distillation of information in newspapers, law reviews, pamphlets, and monographs, and "on the street" interviews.16 The costs and risks of doing business, including profit potential, and out of pocket expenses are also set forth in this section.

To evaluate the market as a whole, total consumption was estimated at 344 metric tons.17 The annual net incomes for drug dealers are estimated by dividing the total drug revenues amongst the estimated number of dealers at each level. One can estimate the amount of revenue for the industry as a whole on the final sales of the total number of metric tons of cocaine sold in the United States. This money can then be divided between the various levels of dealers as each dealer takes his own gross profit, pays his out-of-pocket costs, and pays his supplier at the next level up. The supplier in turn does the same thing.18 Initially, it was arbitrarily assumed that the crack rock dealer on the streets receives revenues of $30,000 per year.19 This is a plausible figure and became a starting point to calculate the incomes, in gross profits (revenue) of all the other dealers. First, the sale price of the 344 total metric tons of cocaine consumed was divided by $30,000 to determine the number of crack dealers, which was then divided by six to determine the number of dealers at each consecutive level up the chain.

It is assumed that the total amount of cocaine increases twice during its distribution: at the level of the kilo retailer, and at the level of the ounce man. Each of them is assumed to add 50 percent weight in cut. The cocaine is only 44 percent pure at final sale. The total amount of cocaine at each level is then divided by the number of dealers at that level to determine how much cocaine each purchases per year. Since the amount of cocaine purchased per transaction is known, and the amount of profit per transaction is known, the total gross income can then be estimated.

To determine what the dealers' real (net) income is, out-of-pocket expenses are estimated. Even the crack dealer pays a "steerer" to send him customers, and a "holder" to carry drugs over a certain amount.20 Yearly out of pocket expenses are estimated at for each of the dealer levels.21 Using these assumptions, a number of calculations are performed and set forth in Table 1.

Incomes are high at every level except the street crack dealer. They are the same no matter what level of metric tons is used to estimate total consumption, because the starting point of $30,000 per year crack dealer led to an inverse relationship between dealer numbers and total metric tons, so that earnings remained the same. In this model, the kilogram wholesaler makes less money than the kilogram retailer, because the kilogram wholesaler adds no cut to his product. He merely purchases a 50 kilogram lot from a smuggler and sells it in 15 kilogram lots to retailers. It does not seem plausible that purchasers at that level would tolerate a significant amount of cut being added, and original wrappings from Columbia add to the value of the cocaine.22 This phenomenon is not unheard of in legitimate businesses as well: a sharp retail salesperson in real estate or the automobile industry frequently earns more than his or her manager or distributor.

Testing the Hypothesis

To determine whether incomes are related to the sum of opportunity costs and the costs of the risks of incarceration (for drugs, injury, and murder) and being murdered or injured, these five costs must be estimated. The number of drug trafficking convictions in 1986 was 76,437,23 and the total number of reported murders in 20 U.S. Cities, in 1988, was 20,610,24 and an estimated 44 percent of these were drug-related.25 The risk of injury is estimated at seven times the risk of being killed.26

In general, it is assumed that there is no difference between the different levels in the probability of going to prison, or being injured or killed. The dealers at the lower rungs of the distribution system are the most exposed to consumers, some of whom may be narcotics agents, and others who will be arrested and "roll-over" (arrange the arrest of their supplier to avoid incarceration). However, greater law enforcement resources are spent pursuing the high level dealers, possibly compensating for less direct exposure.

Opportunity costs are estimates of what the dealer could earn in a legitimate profession, increasing as one moves up the distribution chain. A dealer with the organizational skills of Rayful Edmond could quite plausibly have owned chain of video stores had profits not seduced
him into drug dealing. But the low level crack dealer is often poorly educated and inarticulate, and would likely have held only a minimum wage job.

An hypothesis is studied to learn if how the cocaine industry operates is competitive: Net income is related to opportunity costs plus the expected cost of injury; the expected cost of becoming a murder victim; plus the expected cost of punishment for drugs, homicide and assault.
Page 321

Probability is used to determine the expected value of events (incarceration, injury and murder) whose chance of occurrence is less than one, so that the cost of each event is multiplied by the probability that it will occur. The costs of all events are measured in terms of opportunity costs, OC, or what the dealer could earn legitimately.27

The expected cost of injury is measured by p(I)OC/ 2. The costs of injuries are estimated at OC divided by two. This figure is chosen as an estimate because while injuries can be anything between a scratch and lifelong paralysis, the most common injuries — chest or abdominal wounds — are likely to result in several months of hospitalization with minimal residual disability.28 Therefore, if we assume that being in the hospital is about as undesirable as being in jail, it is valued at double opportunity costs and 3 months of hospitalization is equivalent to 2 x yearly OC divided by 4, or OC/2.

To estimate the expected cost of becoming a victim of murder, both the probability of being murdered, p(M), and the value that a dealer places on his own life must be estim- ated. I assumed the life value at the discounted value of three times his opportunity costs (3*OC). Triple the value of opportunity costs is based on an assumption that the dealer values his time at approximately his opportunity costs. Since he would otherwise spend eight hours a day working, and values the rest of the day at the same rate, he values his life at three times his opportunity costs. This estimate conforms well with similar estimates by Smith,29 and Cohen.30 Since the dealer would normally expect to receive the legitimate earnings for a long time — at least ten years — the discounted value is estimated at V/r, where V is the yearly opportunity costs and r is the yearly interest rate, estimated at 10 percent.31 Life value simplifies to opportunity costs times.30

The terms costs of the risk of imprisonment are p(D)f(D), p(H)f(H), p(A)f(A), for drugs, homicide (so as not to be confused with becoming a victim of murder, M), and assault respectively. In this equation, where p(D/H/A) is the probability of conviction, f(D/H/A) is the length of time that the dealers will have to spend in prison, and C is the cost of being in prison measured as a multiple of legitimate opportunity costs, less the benefits of being in prison: C = k*OC - B.

Here, k is estimated at 2, which assumes that the dealers disutility of being in prison is approximately twice what he could earn legitimately without being subject to the risk of imprisonment. The benefits of prison is estimated at $6,000 to account for the rudiments of shelter, food, and relative safety that prison provides. These items are insignificant to the higher level dealers, but for the crack dealer, frequently a homeless addict, they may be so important that he deliberately gets arrested during the winter. The penalty, f(D)/f(H)/f(I) must be expressed in years rather than months to match the opportunity costs and benefits which are expressed in yearly terms.

The basic equation for a competitive cocaine industry is:

4..1. I = OC + p(D)f(D)C + p(I)OC/2 + p(M)V* + p(H)f(H)C + p(A)f(A)C, where C=2*OC - 6000

The second, fourth and firth terms of the equation therefore simplify to:

4..2. [p(D)f(D) + p(H)f(H) + p(I)f(I)1C = p(D)f(D) + p(H)f(H) + p(I)f(I)* (2*OC - 6000)

For simplicity, the sum of the incarceration terms,

p(D)f(D) + p(H)f(H) + p(I)f(I), will be expressed as p(#)f(#).

In this analysis, the time in prison is measured in actual years, without any reduction for discounting for reduced time value in the future.32 Some authors report that long prison sentences are discounted at a rate of 10- 20 percent per year.33 However, it is intuitive that while a dealer or other person involved in crime may accept the possibility of spending a year or two in prison occasionally instead of maintaining a full-time legitimate job, the prospect of spending the next 15 years in prison 34 is viewed as spending the rest of his life in prison. Because a long sentence for an offender in his twenties means that he will spend his entire youth in prison, discounting is assumed not to take place in this model.

The risk of being imprisoned for murder or assault is more complicated to assess. First, we assume that to maintain the "respect" of his confederates, each dealer must become involved in one shooting per year. When certain situations arise — an encroachment on turf, an informer deal with law enforcement, failure to pay for drugs — a dealer is not only likely to murder, his confederates expect it of him. We assume that a willingness to engage in violence is a requirement to purchase large quantities of cocaine. This does not mean that all those involved in each murder are the trigger man or half the dealers would get shot every year! All the dealer must do under this assumption is drive the car in the drive-by shooting, provide the weapon, lure the victim to a prearranged location, or perform any other act that will make him criminally responsible for the shooting under the conspiracy laws.

Assuming this applies only to those dealers above the level of the crack dealer,35 involvement in one shooting per year is compelled by the other data. Of the 677,000 total dealers, 562,000 distribute crack. This leaves 115,000 at higher levels responsible for 67,7000 total shootings, an average of 1.7 perpetrators of each shooting incident. Viewed as such, violence is an entry barrier to the ounce man level of the distribution chain.

Since we have assumed that there are seven injuries (referred to here as assaults) for every murder, the likelihood that a particular shooting will make the dealer responsible for an assault is 7/8 and the chance that he will be responsible for a murder is 1/8. The likelihoods that an assault or a murder will result in an arrest are 62 percent and 72 percent respectively.36 In Washington, D.C., 47 percent of cases brought by the prosecutor plead guilty and 78 percent of jury trials result in conviction.37 From these data, and the sentence for average sentences for assault (70 months), and homicide (151 months)38 the expected punishment for assault p(A)f(A) and homicide p(H)f(H) can be determined. P(A)f(A) is 1 year, and p(H)f(H) is 2.8 years, totalling to 3.8 years in expected penalties. Hence, the total cost of punishment at each level, p(#)f(#) is equal to p(D)f(D) + 3.8., at any level above the street crack dealer.

The complete equation for hypothetical competitive earnings is:

4..3. I = OC + p(#)R#)*(2*OC - 6000) + P(DOC/2 + p(M)*30*OC

It is apparent that for any level of income and probability of incarceration, injury and murder, there will be an opportunity cost for which the equation will solve.

4.4. OC = (I + p(#)f(#)*6000) / 1 +2*p(#)ft#) + p(I)/2 + 30*p(M))

In this model, that opportunity costs is calculated for all of the dealer levels in the distribution chain. Once it is calculated, the dollar value of the risks of incarceration, injury, and murder can be determined.

Table 2 depicts these calculations.

The opportunity costs calculated by this method are clearly reasonable.40 The high incomes of the dealers are fully explained by the risks they take of incarceration for drugs, assault, or murder; and the risks of being injured or killed themselves. The largest portion of the earnings is explained by the risk of incarceration, not for drugs but for murder. Since the dealers already accept this risk to remain in business, increasing criminal penalties for drug offenses is patently futile unless they were to be increased to a level higher than those for murder.41

The most plausible explanation for the violence of the drug trade is that a vvillingness to engage in violence is an entry barrier which must be overcome to gain access to larger quantities of cocaine. Using this assumption, the costs of assuming the risk of incarceration for assault or murder fully explained the incomes of drug dealers at all levels. It is the only adequate explanation for an industry where there are only 1.7 dealers above "entry" (crack) level for every shooting that takes place each year. This ratio suggests that violence in drug dealing is done not merely for competitive advantage, but as a necessary cost of doing business. Violence solves a number of problems in the drug business, including proof of trustworthiness to associates. In the world of the "war on drugs" proving ones trustworthiness may be essential to doing business at all.

Conclusion

The largest part of the high salaries of drug dealers (above the level of the street crack dealer) is explained by the cost of the risk of incarceration for murder. The risks of incarceration for drugs or assault, and being murdered or injured are much smaller quanti-ties. This deduction, along with the high number of homi-cides within the drug trade, suggest that drug dealers murder because it is necessary to their trade. This could be because dealers expect each other to engage in violence, and are suspicious of individuals who decline to do so. The entry barrier of willingness to engage in violence shrinks the numbers of potential dealers and leads to monopoly profits. However, The monopoly profits derived through limiting output are dissipated in increasing the dealers own cost of expected punishment for homicide or assault, as well as his risk of becoming a victim.

Policy Implications

Legalization is the only strategy which will completely eliminate this malignant distribution system. Only legalization will destroy the demand for the criminal's overpriced and adulterated product. But if legalization is not implemented, we should consider reducing the pressure of law enforcement. If the violence is done to gain market power, reduced pressure could be dangerous as the current dealers struggle to maintain market power and deter new entry possibly with increased violence. But if the reduction is in conjunction with heightened law enforcement for murder, but not drugs, violence is likely to decrease.

The informer system must be eliminated since it breeds violence. If reasons for violence are to establish that one is trustworthy or eliminate potential informers, reduced law enforcement pressure and abolishing the informer system will substantially reduce violence. Once dealers no longer need concern themselves with whether their buyers are informers, the need for violence will disappear. Violence would no longer be expected, and will consequently taper off. Turf battles will also lessen as dealers will find reduced profits with little risk of a drug arrest preferable to risking a homicide charge, and find other ways to settle disputes. Only when murder is "not worth it" will it cease to be the dealers' optimal strategy.

Nancy Lord, a medical consultant and Georgetown University Law School student, was the Libertarian Party candidate for the mayor of Washington, D.C., in 1990. Her address is 1545 18th St., N.W., Washington, D.C. 20036. (202) 332-9170.

Footnotes

1 Johnson, K., In Hartford, Drug Wars May Broaden Concern, New York Times (November 11, 1989).

2 Four Edmond Co-Defendants in Cases for Defense, Washing-ton Post, at F3, col. 1, November 25, 1989 [hereinafter Edmond]

3 Reuter, P., and Haaga, J. The Organization of High-Level Drug Markets: An Exploratory Study (Rand) (February, 1989).

4 National Narcotics Intelligence Consumers Committee (NNICC), Tite NNICC Report 1987, Tite supply of Illicit Drugs to the United States (April, 1988).

5 Reuter & Haaga, supra note 3 at 46.

6 See e.g. Edmond, supra note 2; Cocaine Trial Advances, Washington Post, Nov. 29, 1989, at D8, col.l.

7 Reuter & Haaga, supra, note 3, at 50, and Edmond, supra note 2.

8 Reuter & Haaga, supra, note , at 29, N. 7.

9 Kolata, Despite Its Promise of Riches, The Crack Trade Seldom Pays, New York Times, Nov. 26, 1989, at Al, col. 1.

10 On the street interview with S., a former crack house worker, October 7, 1989.

11 Kids who Sell Crack, Time, May 9, 1988, at 20.

12 Fteuter & Haaga, supra note 3, at 44.

13 Reuter, P. and Haaga, J. supra not,e 3, at 44. While probably close to reality in the top echelons, there may be more crack dealers per ounce man than I have estimated. However, the transiency of the relationship might mean that there are only six dealing with him at any particular time. The number was chosen in order to be consistent with the relationships at the higher levels.

14 This is not true for the large crack gangs who purchase wholesale cocaine and operate in a vertically integrated manner all the way down to the level o f the crack house which sells individual "rocks" of cocaine. But to develop a relatively simple model, homogeneity had to be assumed.

15 Reuter, P. Crawford, G., and Cave, Sealing the Borders, The Effects of Increased Military Participation in Drug Interdiction, 142-8 (The Rand Corporation, 1988).

16 The later were interviews of "street people" in northwest Washington who are familiar with the drug culture. By speaking with a number of them on an anonymous basis, and comparing the results with the published literature, the prices I have described are within the range of actual prices for cocaine according to law enforcement publications. See, e.g. States of New Jersey Commission of Investigation, Cocaine 5 (March 1989); National Narcotics Intelligence Consumers Committee (NNICC), The NNICC Report 1987 26 (April 1988).

17 Recent NIDA studies estimate that between 111-153 metric tons of cocaine are consumed each year. Reuter & Haaga, supra note 3, at 2. Unfortunately, it is unclear exactly whether this means the total amount of pure cocaine that is imported and the cut is add to the 111-153 metric tons. or if it means the total amount of cocaine-mixture that is consumed after the cut has been added. At the upper limit of 153 metric tons imported, and assuming a 50 percent cut is add twice during distribution, the amount of cocaine-mixture consumed is 344,250 kilograms led to the most reasonable dealer incomes. If the NIDA figure is an estimate of the amount of cocaine-mixture that is consumed, it is low when compared to the number of Americans who use cocaine. NIDA estimates that 852,000 people use cocaine at least once a week, and 292,000 use it daily. H.H.S. News, U.S. Department of Health and Human Services (Released July 31, 1989) (hereinafter NIDA News). If the 852,000 people use it an average of 3.5 days per week, at .5 grams per use, and that "casual use" accounts for only 20 percent of the cocaine consumed in the U.S., consumption equals: 862,000 x 3.5 x 52 x .5 x 1.25 = 980,525,000 grams = 980 metric tons.

18 Compared to the final price that a kilogram of cocaine will sell for on the street, at $100 per gram, the money originally paid to the Medellin cartel is insignificant. The original kilogram, at $2,000, is cut twice by adding an additional 50 percent of total weight each time it is cut. The first cut enlarges it to 1.5 kilo-grams, and the second to 2.25 kilograms, which then will be sold for $225,000 on the street. The original $2,000 is only .8 percent of the total price.

19 At the lowest levels, many of the dealers sell drugs on a part-time basis. Reuter, P. Why do cocaine Dealers Earn So Much, So Little, 30 (presented at the John M. Olin Law and Economics Seminar, February 1, 1990). However, this would not effect the analysis if the crack dealers who make $30,000 per year gross are considered as full time equivalents because while incomes are divided amongst a greater number of part-time sellers, so are risks. It is also likely that many of these individuals are consum-ing a large portion of their incomes in the analysis because as long as they make enough money to pay for the crack that they smoke, the remainder of the chain is unaffected. The $30,000 per year figure, which translates to &18,000 per year net profits, comports well with Reuter's mean 20. See also, Kolata, G., Despite Its Promise of Riches, The Crack Trade Seldom Pays, New York Times, Nov. 26, 1989, at Al, col. 1.

20 Dealers know what quantity constitutes a felony and make sure that the seller, who is most vulnerable to arrest, is never holding that much. Interview with Rudolph Guiliani, U.S. Attorney for the Southern District of New York, In New York City (September 29, 1988).

21 It is assumed that each "holder" earns $20/day for a total cost of $12,000 per year t,o the crack dealer. The ounce man requires a lookout - $50 per day; baking soda, wrapping other supplies - $20 per transaction; guns & ammunition $1000 per year; lawyer - $10,000 per year; rent $500 per month; and a runner - $50 per day. The kilo retailers expenses include: body guards - $30,000 per year each, $60,000 per year for two; couriers - $1000 per transaction; travel costs of the courier - $1000 per transac-tion; travel costs for himself and guards - $3000 per transaction; lawyer on retainer - $20,000 per year; rent $1,000 per month; associates to meet & conduct sales - $2,000 per transaction; and bribes $10,000 per year. The kilo wholesaler has expenses that are similar to those of the kilo retailer: body guards $60,000 per year; travel for himself and guards - $3,000 per transaction; bulk shipment by truck, including gas, etc. - $1,000 per transaction, driver - $1,000; bodyguard - $1,000 per transaction, unloaders - $1,000, ware-house - $2,000 per month, lawyer on retainer - $10,000 per year; finders fees or associates to conduct sales $5000 per sale; bribes - $10,000 per year; look-outs - $500 per transaction. The smuggler also has high expenses: body guards - $70,000 per year each, $140,000 per year of two; pilot - $100,000 per transaction including plane; gas - $1000 per trip; drop off point - $5,000 per transaction; unloaders - $5,000 warehouse - $5,000 per month; lookouts and guards - $3,000 per transaction; lawyer on retainer - $100,000 per year; finders fees or associates to conduct sales $20,000 per sale bribes - $50,000 per year.

22 Author's experience in ciiminal drug defense.

23 Bureau ofJustice Statistics, U.S. Department ofJustice, Felony Sentences in State Courts, 1986. This is admittedly inconsistent with using the Federal Sentencing Guidelines to determine the expected length of the sentences, but since most drug offenses are prosecuted by the states, the risk of state charge is higher. Further, some states have instituted Guideline systems which are modeled after the Federal Guidelines. See, i.e., Virginia Sentencing Guidelines.

24 Is Boston Safe, The Boston Sunday Globe (November 5, 1989)

25 In Washington, D. C., 164 of 371 murders were drug related. Murder in D.C., The Washington Times (November 1, 1989).

26 Reuter, P. Why Do Cocaine Dealers Earn So Much, So Little, 128 (presented at the John M. Olin Law and Economics Seminar, February 1, 1990).

27 The lost earnings must be measured in opportunity costs for legitimate earnings, because the illicit drug trade earnings could not otherwise be made.

28 Authors professional experience in clinical medicine and hospital record review.

29 Blodgett, N., Hedonic Damages, 25 A.B.A. Journal 71 (February, 1985) (quoting Stan Smith).

30 Cohen, L., Toward an Economic Theory of the Measurement of Damages in a Wrongful Death Action, 295, 321-5 Emory Law Journal 34 (2), 1985.

31 Goetz, Charles E., Adjustments of Costs and Benefits, in Law and Economics 158-211, 1983.

32 To discount the figure, it must be divided by 1.1 to thenth power, where an interest rate of 10 percent is assumed and n is the number of years. Goetz, Charles J. 159-63 Law and ECOPWM-irs (1984).

33 See, e.g., Easterbrook, Frank H. Criminal Procedure as a Market System 289, 295 Journal of Legal Studies 7(2), June 1983.

34 See Reuter, supra note 36.

35 At the crack level, there are no entry barriers and no require-ment to engage in violence - possibly the willingness to engage in violence enables a crack dealer to move up to the level of the ounce man.

36 Bureau ofJustice Statistics, U.S. Department ofJustice, Report to the Nation on Crime and Justice, NCJ-105506 (March 1988), at 68.

37 Id., at 83-84.

38 Federal Sentencin,g Guideline Manual 249 (United States Sentencing Commission, 1987).

39 The expected penalty for assault is one year, therefore the expected cost of incarceration for assault is equal to opportunity costs.

40 Even the smuggler's opportunity costs of nearly $180,000 are not out of line with expectations for a businessman who owns a fleet of planes and transports large volumes of goods in interna-tional trade. The smuggler could probably earn $180,000 import-ing flowers and coffee if he chose.

41 Another problem appears when the penalty for drug offense approaches that of murder — a dealer will have a strong incentive to kill anyone who poses a threat of exposing or convicting him for a drug offense. Anyone suspected of being an informer, or even an indiscreet acquaintance is likely to be murdered under these circumstances.