Walking around today I thought of the topic of risk quite a bit. In one of my classes, we discussed risk, and how risk is neither good nor bad, as long as it is properly priced. We discussed pricing risk in relation to investment, however really it could be applied to everything in life. Thinking about this amused me.
Like Drug Dealing.
Think about it, within the marijuana trade, the risk is proportional to the risk the individual dealer takes on. A dealer who is willing to purchase and be responsible for a larger quantity of weed should make a higher margin on their product. The risk of arrest and imprisonment is multiplied as their quantities increase, to a point. Also, the risk of capital invested is higher, for the drugs may be seized, causing a large loss of investment as the quantity increases. Also as the quantity increases and more money is involved, the risk of injury or death from other market participants increases. So, it just makes sense that drug dealers who deal with larger quantities would be compensated at a higher level for their higher amount of risk. These reasons also related to why cocaine has higher margins that marijuana. There is harsher imprisonment penalties, as well as more capital involved, and the injury risk, all described above.
If a dealer chooses to pass some of the risk off, by having another person sell some of their supply, then their profit margin will decrease as well.
But then I was thinking the drug trade does not price risk accurately and evenly because there are conditions which exist in the trade which do not exist elsewhere. Like addiction, illegality, etc. In some drugs, alot of the dealers are users themselves and finance their habit by selling. Their addiction may not allow them to accurately weight the risk involved that would require them to receive a larger compensation for their risk. Also, the price elasticity of demand is, from my observation, very off in the drug trade. Meaning, as prices increase, the demand does not decrease at an appropriate scale.
I have not researched this yet, it was just a passing thought earlier today. However, I see potential.
Is risk properly priced in drug dealing…..hmm..this just may be my next thesis……..stay tuned.