# How could Pablo Escobar earn so much money?

I read it's about 30 billion. But I read there were 6 million users in 1985. Let's say he gets 10 percent of the sales price, it means each person paid 50000 dollars for cocaine. It sounds way too much. Any calculations how they reached this amount?

• In 1989, Forbes magazine estimated that his wealth was "only" \$3B (source). Adjusting for inflation, that might be \$5B or \$6B in today's dollars, but nowhere near \$30B. Escobar's son disputes even the \$3B figure, calling Forbes liars (article). – Kenny LJ Jul 30 '17 at 23:47 • See also this 2009 Forbes article, which describes a little how El Chapo made his money: "In 2008 Mexican and Colombian traffickers laundered between \$18 billion and \$39 billion in proceeds from wholesale shipments to the U.S., according to the U.S. government. Guzmán and his operation likely grossed 20% of that–enough for him to have pocketed \$1 billion over his career and earn a spot on the billionaires list for the first time." – Kenny LJ Jul 30 '17 at 23:47

Not sure an economist can answer this particular question about Escobar's wealth and not only because all the given estimates are uncertain. A more interesting question for an economist (or at least for me) would be: What is Escobar's (a drug firm) mark-up? Or what is the economic size of the international market for cocaine?

The most serious source of information I was able to find is the 2012 World Drug Report of the United Nations Office on Drugs and Crime (UNDOC). UNODC estimates suggest that

1. The total retail market for cocaine amounts to some US $85 billion in 2009 (p.70). 2. Columbian production proxied in terms of hectares is around 89% (based on 2009's estimates (68,000+73,000)/158,800 - Table 12). So, if you assume that all Columbian production is produced by Escobar's cartel his total benefit is about USD$75 billion for the year 2009.

Edit: However, we cannot assume that Escobar's cartel got 89% of the retail value (thanks to @Alecos Papadopoulos for this point). The USD 75 billion is the equivalent of the "box office" for a movie - but the producers of the movie (i.e. Escobar's cartel) do not get all the box office.

Then, the question is what is the proportion retained by the Escobar's cartel? I have no clue! However, Levitt and Vetakesh QJE paper document that "earnings within the (drug) gang are enormously skewed (..) with high-level gang members earning far more than their legitimate market alternative." So, by extrapolating from this result and assuming that the drug market is vertically integrated and controlled by the Escobar's cartel, we may speculate that the latter (and Escobar himself) may get a big part of the box office.

In this report, you may also find more reliable estimates about

1. The total number of cocaine users: 16 million (Table 7)
2. and the estimates per region.
3. Purity-adjusted prices per gram in those regions

So if you find some data on consumer's average consumption and Escobar's production you may get a better estimate of his wealth.

• At least according to Wikipedia quoted sources, "[Escobar's] cartel, at the height of his career, supplied an estimated 80% of the cocaine smuggled into the United States, turning over US \$21.9 billion a year in personal income." So your 89% figure is probably not too far off. – Ubiquitous Nov 25 '16 at 17:07
• Good to know! Thanks. I am curious about how did they estimate his personal income. – emeryville Nov 25 '16 at 17:58
• My numbers make more sense if I span them over 10 years. Thanks. – Ronen Festinger Nov 25 '16 at 22:56
• You are assuming that Escobar's cartel got 89% of the retail value. This is not the case. The USD 75 bil is the equivalent of the "box office" for a movie - but the producers of the movie (i.e. Escobar's cartel) do not get the box office. The theaters (i.e. middle-men) get a piece of the action, and it is not small. – Alecos Papadopoulos Nov 25 '16 at 23:52
• @AlecosPapadopoulos you are right and I will add this point. However, Levitt and Vetakesh QJE paper document that "earnings within the (drug) gang are enormously skewed (..) with high-level gang members earning far more than their legitimate market alternative." So, by extrapolating from this result and assuming that the drug market is vertically integrated and controlled by the Escobar's cartel, the latter may get a big part of the box office! – emeryville Nov 26 '16 at 7:58

I didn't go through all that thinking and analysis as I see in this post, but while watching Narcos (both seasons so far), listening to the narration it seems the drug business is really just a logistics business, the value lies in insuring that the end user gets the product all cost even in human casualties.Every possible cost is factored into that value, so if you the manufacturer control every aspect of the supply chain, including insurance on the product. You can have a mark up as high as you want 1000%, 5000% if you want. Target a market that has the cash to burn, literally like the US or some specific areas of it, it really is that simple to be extraordinarily wealthy.

• You may want to reread that chapter on monopoly price setting. Being a monopolist does not mean you can make arbitrarily high profits. – Tobias Jul 30 '17 at 9:33