Estimating the International Cocaine Market: A Novel Combination of Excess Compensation and Stochastic Frontier Analysis

• Published in: Asian journal of law and economics 2024-01, Vol.15 (3), p.411-431
• Main Authors: Le, Ba Tam, Mai, Xuan Thi Thanh, Ngo, Thanh, Le, Tu D. Q.
• Format: Article
• Language: English
• Subjects: C44; C61; Cocaine; excess compensation; I18; Illegal drug operations; illicit cocaine market; International markets; K42; Money laundering; stochastic frontier analysis; Unreasonable compensation
• ISSN: 2194-6086; 2154-4611; 2154-4611
• DOI: 10.1515/ajle-2023-0129

Although there are different ways to estimate the value of the illicit drug markets, the main issue remains that one cannot estimate the unseized or floating value of drugs at the country- and international-level markets. This study applies a novel estimation method that combines excess compensation estimation (from the financial field) and stochastic frontier analysis (from the operations research field) to estimate the value of the international cocaine market in 2019. Our estimations show that in 2019, the unseized market accounted for 32.16 % of the total market of cocaine and was smaller than the ratio of 48 % in 2007, indicating that the effectiveness of countries in disrupting the illicit cocaine market has improved. More importantly, we show that improvement in dealing with money laundering risks could also help reduce the illicit market of cocaine since illicit cocaine/drug proceeds must be laundered before they can be used by criminal organisations.