An optimal anti-drug law enforcement policy.

Summary The author models an optimal drug law enforcement policy that aims to reduce the social cost of drugs. He takes into account the net cost of enforcement, the social damage and the agents' surplus. It considers vertically organized distribution channels with two levels: traffickers and retailers. The two questions are: which type of sellers should the authorities prosecute: traffickers or retailers, and what penalty should be imposed on the seller in case of arrest? The optimal level of the fine depends on the type of sellers arrested, the probability of arrest at the time of the transaction, and the sensitivity of the social harm to the quantities consumed. The author shows that setting the fine at its maximum level is rarely optimal.