Technical Note—On the Estimation of Smuggling in a “Gray Market” Commodity

Michael D. Maltz
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Michael D. Maltz: University of Illinois, Chicago, Illinois

Operations Research, 1976, vol. 24, issue 6, 1156-1163

Abstract: This note develops a method for estimating the amount of cigarette smuggling occurring among the various states. This particular organized crime is termed a “gray market” activity because the commodity is not illegal but is differentially taxed by the states, thus leading to illegal importing from low-tax states to high-tax states. Sales tax, demographic, and geographic data are combined in a mathematical model of the smuggling operation, which is used to estimate the amount of smuggling into a state and its impact on the state's revenue. It should be useful in determining the effectiveness of programs aimed at reducing cigarette smuggling.

Date: 1976
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