Archive for May 30, 2014

AN ECONOMIC ANALYSIS OF A DRUG-SELLING GANG’S FINANCES: Section IV – Regression Analysis 2

May 30, 2014

Table 6 presents the regression results. Each column corresponds to a different dependent variable. The results mirror those in the earlier tables. Wars are associated with dramatic declines in price, quantity, profit, drug revenue, and markups. Foot-soldier wages are positively related to wars. In all cases these estimates are highly statistically significant. The transition period is not very different from the pre-expansion months: quantity rises and price falls, but revenues, profits, and total surplus are statistically indistinguishable from the earlier period. The post-expansion months, on the other hand, represent a radical break. Total gang surplus and total drug revenues are over $23,000 a month higher after the expansion, or roughly double the mean values for these variables observed over the sample. Interestingly, the increases in surplus go completely to the foot-soldiers, whose wage rises over $4.00 per hour. The gang leader’s profit, in stark contrast, actually falls slightly in column 2.
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AN ECONOMIC ANALYSIS OF A DRUG-SELLING GANG’S FINANCES: Section IV – Regression Analysis

May 28, 2014

While the preceding section provides a broad overview of the factors impinging on gang finances, a major limitation on the analysis is the inability to disentangle the independent contributions of various factors. For instance, if the local drug market is growing over time, than attributing all of the increased revenues at the end of the sample to the gang’s victory over the rival gang overstates the true impact. Regression analysis also allows for the removal of any seasonal component in the drug market. The primary limitations on the regressions is the limited number of available observations and the positive correlation between the various measures of risk (gang wars, deaths, injuries, and arrests).

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AN ECONOMIC ANALYSIS OF A DRUG-SELLING GANG’S FINANCES: Section III: Data and Analysis 14

May 26, 2014

The final two comparisons are between gang wages and market wages (both before and after expansion). We use an (after-tax) market wage of $4.00 as the baseline.28 We also assume that the likelihood of violent death is zero for non-gang members.29 The average gang wage before expansion is $5.30. Assuming 20 hours of work a week, the gang premium translates into an extra $108 per month. Given a .00415 chance of death per month, the implicit valuation on life is $26,100. A similar calculation for the post-expansion period yields a valuation of $54,700. Electronic Payday Loans Online

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AN ECONOMIC ANALYSIS OF A DRUG-SELLING GANG’S FINANCES: Section III: Data and Analysis 13

May 24, 2014

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The first comparison is between foot-soldier wages in war and non-war months in the pre-expansion portion of our sample. The average monthly wage in war and non-war months is calculated to be $220 and $130 respectively, or a $90 differential. Given an observed differential in the chance of violent death of .012 per month from Table 5, the implied value of a life is $7,500. This number may be unrealistically low because foot-soldiers may not really have the choice of not selling during war months without sustaining other punishments. Furthermore, to the extent that heroic actions in wars are rewarded with promotions, this static analysis may not adequately capture the tradeoffs involved in war months.

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AN ECONOMIC ANALYSIS OF A DRUG-SELLING GANG’S FINANCES: Section III: Data and Analysis 12

May 22, 2014

Gang members who were active for the entire four year period had roughly a one in four chance of dying. Furthermore, there was an average of over two non-fatal injuries (mostly gunshot, but some due to knives or fists) per member, and almost six arrests.The risks associated with selling drugs in this sample are astonishing. By comparison, homicide victimization rates for black males aged 14-17 in the United States are roughly 1 in 1,000 per year, or roughly 100 times lower than we observe in this sample. Even among rank-and-file of this gang (those affiliated with the gang, but not actively engaged in the drug trade), homicide rates are only about 1 in 200 annually in our sample. fully

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AN ECONOMIC ANALYSIS OF A DRUG-SELLING GANG’S FINANCES: Section III: Data and Analysis 11

May 20, 2014

A final interesting feature to note with respect to gang wars is the steep increase in foot-soldier wages during wars in the early part of the sample. Pre-expansion, foot-soldier wages are almost 70 percent higher during gang wars.25 The increase in foot-soldier wages is a clear example of compensating differentials. Table 5 presents the frequency of adverse events in our sample, expressed in terms of likelihood per gang member per month. The observed likelihood of violent death in the pre-expansion time period is 1.2 percent per gang member per month during wars. In contrast, there were no gang fatalities in non-war months prior to the transition. The likelihood of injury more than doubles with gang wars during the pre-expansion period, and the arrest rate also increases. As one foot-soldier put it at the time:
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AN ECONOMIC ANALYSIS OF A DRUG-SELLING GANG’S FINANCES: Section III: Data and Analysis 10

May 18, 2014

A second strategic element of gang wars is the price response on the part of the gang.

The bottom row of Table 4 presents Lerner indexes ((price minus marginal cost)/price) for the gang in the different parts of the sample. For the purposes of calculation, the gang’s marginal cost is assumed to be only the cost of goods sold and wages paid to foot-soldiers. All of the other costs are reasonably viewed as fixed costs.24 Prior to expansion, the gang prices below marginal cost during wars (Lerner index=-.08). This suggests one of two possibilities. First, the low price is a strategic response designed to punish the rival gang for the attack. Second, there may be costs for drug buyers associated with switching suppliers.
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AN ECONOMIC ANALYSIS OF A DRUG-SELLING GANG’S FINANCES: Section III: Data and Analysis 10

May 16, 2014

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The strategic aspects of gang wars are not lost on the participants. The rivals to the North who are eventually vanquished use violence in their competition’s turf as an explicit strategy for shifting demand to their own territory. As one former member of the rival gang put it during a gang war:

“See the thing is they [the gang for which we have data] got all these places to sell, they got the numbers [of sellers], you know. It’s not like we can really do what they doing. electronic-loan.com

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AN ECONOMIC ANALYSIS OF A DRUG-SELLING GANG’S FINANCES: Section III: Data and Analysis 9

May 14, 2014

Tables 2 and 3 fail to capture the dramatic impact that gang wars have on the gang’s financial situation. A gang war is defined as a prolonged period of violence involving repeated exchanges of weapons fire between rival gangs. Gang wars typically follow the attempt of one gang to disturb the drug distribution activity of a neighboring group. During gang wars, there is an easily discernible reduction in street activity and public loitering, and typically a heightened police presence. Information on the existence of a gang war during a particular month was collected by Venkatesh in the context of a past ethnographic analysis. Over the period we study there are seven episodic gang wars lasting for a total of twelve months, or roughly one-quarter of our sample. There are gang wars in each of the four years of our sample. In addition, there is a five-month period of transition in the third year of our data during which the gang incrementally seizes control of the territory to the North.

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AN ECONOMIC ANALYSIS OF A DRUG-SELLING GANG’S FINANCES: Section III: Data and Analysis 8

May 12, 2014

We calculate average wages both under the assumption that the official data fully capture the wages and profits to the organization (columns 1-3) and allowing for the gang leader to skim 10 percent of drug revenues and the foot-soldiers an additional 15 percent (columns 4-6). Focusing on that second set of estimates, which we believe to be more representative, the average wage in the organization ranges from $5.90-$11.10 during the sample period. This value is substantially above legitimate market wages available to the foot-soldiers, who as poorly educated inner-city youths are unlikely to earn much more than the minimum wage. Thus, in spite of the low wages earned by foot-soldiers, participation in the gang may nonetheless be an economically rational decision.22 As will be discussed later, however, the wage premium earned by gang members is relatively small given the enormous risks associated with selling drugs.

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