economics of drug dealing (freakonomics)

Economics ofDRUG DEALING

SUDHIRVENTAKESH

STEVENLEVITT

PENETRATING THE GANGQ. How do you feel being poor and Black in America?

A) Very GoodB) GoodC) Bad D)Very Bad

MCDONALDS VS DRUGBoard of Directors

VPs VPs VPs

Franchise Franchise Franchise

Sales Man

Sales Man

Sales Man

WAGE RATES

Local Leader: $100,000 Per Year

Regional Leader: $200,000 Per Year

Board of Directors: $400,000 Per Year

Foot Soldiers: $3.5 Per Hour

RISKY JOBAnnual Death Rates Per Person

Foot Soldiers in the gang: 7%

Inmates on death row: 2%

Inner city Black teens During crack peak: 1% U.S Military force in IRAQ: 0.5%

THEORY Vs PRACTICE

Economic principles in the Real World

“Would you stand around here when all this shit is going on? No, right? So if I gonna be asked to put my life on the line, then front me the cash man”

A “compensating differential” is the increment to wages thatA worker requires to leave him indifferent between performing Two tasks, one which is more unpleasant than the other

THEORY Vs PRACTICEGame Theory

“If we start shooting around there [the other gang’s territory], nobody, and I mean you dig it, nobody gonna step on their turf.But we gotta be careful, ‘cause they can shoot around here tooAnd then we all fu**ed.”

Every Two-person game has a Nash Equilibrium

THEORY Vs PRACTICEEconomic principles in the Real World

“You got all these niggers below you who want your job,

You dig? If you start taking losses, they see you [as]

Weak and shit”

Cash flow constraints dictate that the local leader cannotMake large losses in any month