A debate in drug policy rankles between proponents of use reduction and harm reduction. This paper presents a stylized two-state, one-control dynamic optimization model of this choice based on a social cost related definition of harm reduction, and parameterize it both for cocaine in the U.S. and for Australia's population of injection drug users. Static analysis of a binary choice between pure harm reduction and pure use reduction suggests that whether or not harm reduction is a good strategy can depend on various factors such as the particular drug, the country, the social cost structure, or the stage of the "epidemic". The optimal dynamic control version of the model involves boundary solutions with respect to the control variable with several switches in the optimal policy. The results have interesting interpretations for policy. Even for the U.S. parameterization, harm reduction turns out to have a potential role when drug use is either already pervasive or when use is so rare that there is no danger of explosive increases in initiation, but perhaps not when drug use is near a "tipping point". In contrast, in the parameterization for Australian IDU, where effective harm reduction tactics exist and budgetary cost for harm reduction measures are small, harm reduction appears preferable starting from any initial state. Furthermore, an interesting feature of our simple model is the occurence of indifference curves, consisting of points where the decision maker is indifferent between two transients that will approach the same steady state in the long run. These transients result in the same social cost for the decision maker, but are characterized by quite different optimal policies.
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