Efficiency of purchasing and selling agents in markets with quality uncertainty: The case of illicit drug transactions

Christian Ben Lakhdar (), Hervé Leleu, Nicolas Vaillant () and François-Charles Wolff

European Journal of Operational Research, 2013, vol. 226, issue 3, 646-657

Abstract: Since Akerlof’s theory of lemons, economists have viewed quality uncertainty as an informational advantage for sellers. Drawing on frontier techniques, we propose in this paper a simple method for measuring inefficiency of both sellers and buyers in markets for goods with different levels of quality. We apply a non-parametric robust double-frontier framework to the case of illicit substance markets, which suffer from imperfect information about drug quality for purchasers and to a lesser extent for sellers. We use unique data on cannabis and cocaine transactions collected in France that include information about price, quantity exchanged and purity. We find that transactional inefficiency does not really benefit either dealers or purchasers. Furthermore, information influences the performance of agents during market transactions.

Keywords: (D) Data envelopment analysis; (P) Economics; (P) Pricing; (P) Purchasing; (P) Retailing; (P) Uncertainty modelling (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Efficiency of purchasing and selling agents in markets with quality uncertainty: the case of illicit drug transactions (2013)
Working Paper: Efficiency of purchasing and selling agents in markets with quality uncertainty: The case of illicit drug transactions (2013)
Working Paper: Efficiency of purchasing and selling agents in markets with quality uncertainty: The case of illicit drug transactions (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:226:y:2013:i:3:p:646-657

DOI: 10.1016/j.ejor.2012.12.003

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