Overview of the methodology

• Author: Singleton, Nicola; Kalamara, Eleni; Noor, André
• Pages: 8-12

TECHNICALREPORTIEstimatingthesizeofthemainillicitretaildrugmarketsinEurope:anupdate

8

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2Overviewofthemethodology

2.1Thebasicmodel

Thesizeofthemarketestimatedherereferstotheoverallvalueoftheretailmarket,i.e.thetotalamount

spentondrugsbythepeoplewhousethemintheEuropeanUnion,andthequantitythattheypurchase,

ratherthanthenumberofconsumers.Therearetwomainapproachestoassessingthemarketsizeforillicit

drugs.Thefirsttakesasupplysideortopdownapproach,combiningdataonproduction,amountsseizedand

pricestoobtainanestimateoftheoverallmarketsize(UNODC,2005).Thesecondandmorecommon

approachisdemandsideorbottomup,inwhichprevalencedataarecombinedwitheitherassumptionson

thequantityusedandpricedatatogiveexpenditureestimates(e.g.Caseyetal.,2009;KilmerandPacula,

2009;Pudneyetal.,2006;vanLaaretal.,2013)orwithdataonamountspentondrugsfromsurveysofusers

toobtainexpenditureestimatesdirectly(e.g.Legleyeetal.,2008)andthenusingpricedatatoworkbackwards

toestimatethequantityused.

Intheguidanceprovidedtonationalstatisticalofficesaboutestimatingthevalueofilliciteconomicactivities

byEurostat(2018)theystatethat:‘Usually,supplyapproachdatafromproducersandimportersaremore

reliablethandemandapproachdatafromconsumers,investorsandexporters,asthenumberofproducers

andimportersisrelativelysmallcomparedwiththenumberofconsumersandinvestors.However,supply

approachdataarenotalwaysmorereliableinthecaseofIEAs[illiciteconomicactivities],whereproducers

andimportersmakeeveryefforttohidetheirtransactions.Fortheproductionandtraffickingofdrugs,for

example,wheresupplyapproachdata(basedonquantitiesseized)arepotentiallytoounstable,theGNI

Committeerecommendsstartingwiththedemandapproach(basedonanestimateofthequantityofdrugs

consumed).’

Theestimatesdescribedinthispaperuseademandsideapproach,forthereasonshighlightedbyEurostat

above.Althoughthereareanumberofissueswithconsumptiondatathatarediscussedinmoredetailinthe

sectionbelowonChallengesandlimitationstoestimatesofretailmarketsizeforillicitdrugs,theyare

neverthelessmorereliableandlessvolatilethanseizuresdatacurrentlyavailable.Thebasicmodelusedin

suchanapproachcanbeexpressedinsimpleformas:

Totalannualconsumption(quantity)=No.oflastyearusers*Amountusedperyear

Marketvalue(peryear)=Totalannualconsumption*Price

Inotherwords,anestimateofthenumberofpeoplewhohaveuseddrugsinthepastyearismultipliedbyan

estimateoftheaveragenumberofdaysofuseperyearandanaveragequantityusedperdaytoobtainthe

estimatedtotalannualconsumption.Thisestimatecanthenbemultipliedbypricedatatoobtainthemarket

value.

However,suchasimplemodelignoresmanythingsthatweknowaboutthevarietyinpatternsofuseamong

thepopulation,andthelimitationsofthedatasourcesbeingused.Thuseventhebasicmodelneeds

refinement.Oneobviousissueconcernstheheterogeneityofusersandtheimpactonamountsused.People

whohaveuseddrugsinthepastyearwillrangefromthosewhoexperimentonlyonceortwiceandarelikely

toconsumecomparativelysmallamountsontheseoccasionstodailyuserswhomayuselargequantitiesof

thedrugeachtime.Todealwiththisissuewehavetried,asfaraspossibleforeachtypeofdrug,toidentify

differentgroupsofuser,basedontheirintensityofuse,whichchangesthesimpleformulaforcalculating

quantityusedto:

Totalannualconsumption(quantity)={(No.oflastyearusers)U*(Amountusedperyear)U}