Where Size Matters: Agglomeration Economies of Illegal Drug Markets in Philadelphia

Abstract

There is a debate over whether police attention focused on an illegal drug market causes dealers to spatially displace their activities “around the corner” therefore having no positive impact on the aggregate level of illegal drug sales in the city. The alternative perspective is that focused police attention lowers the rate of illegal drug sales in the city. Recent research in Jersey City, New Jersey has demonstrated that focused police attention does not simply move illegal drug dealing around the corner. The present analysis explains why this finding is likely to be common in other cities using the economic theory of “agglomeration economies.” Agglomeration economies illustrate that taking the largest and most profitable site from illegal drug dealers will make dealing in the surrounding neighborhoods less rather than more profitable and lead to a smaller marketplace overall. The empirical analysis focuses on Philadelphia, Pennsylvania.