# 5 COST BENEFIT ANALYSIS OF AERIAL SPRAYING

As discussed in the introduction, the aerial spraying program is the largest component among the supply reduction efforts implemented under _Plan Colombia_ . Between 2000 and 2008, $585 million were allocated to the eradication program, whereas $62.5 million were allocated to air interdiction, $89.3 million to coastal and river interdiction by the military forces, and $152.7 million to interdiction activities carried out by the Colombian Police (see the U.S. Government Accountability Office—GAO 2008).

Our regression discontinuity estimates suggest that a 10 percentage points increase in the likelihood of spraying a 1 square km grid leads to a reduction of approximately 0.3 hectares of coca. Our conditional differences in differences point to a reduction of approximately 0.22 hectares. Since 1 square kilometer contains 100 hectares, these estimates imply that to reduce cultivation by 1 hectare during a given year, between 33 and 45 hectares would have to be sprayed.

It is estimated that the average direct cost to the United States per hectare sprayed is about $750 (see Walsh et al. 2008). Thus, reducing cultivation by 1 hectare through financing spraying campaigns costs the United States between $24,750 and $33,750 dollars. Additionally, for every dollar spent by the United States, Colombia spends about 2.2 dollars (aerial spraying campaigns are jointly financed by the countries), making the overall total cost range between $79,200 and $108,000 per hectare of coca crops reduced. To put these numbers in perspective, the coca leaf in one hectare produces about 1.2 kgs of cocaine per harvest, with a farmgate market value of about $4,200 dollars.

From a drug policy perspective, it is more informative to calculate the benefits in terms of the reduction of kilograms of cocaine in consumer markets. We do not have estimates of the social benefits of such reductions, but at least we can compare the cost to that of other policies achieving a similar objective. To do so, we use the estimates in Mejia and Restrepo (2013) obtained by calibrating a model of downstream cocaine markets. The authors find that a 1% reduction in coca cultivation reduces cocaine in consumer markets by 0.0025%. This elasticity is small for several reasons. First, cultivation represents only a small fraction of the total market value of cocaine in consumer markets. Thus, an increase in the price of coca leaf caused by spraying translates into a small increase in consumer prices. Second, demand is inelastic, so the small increase in prices barely affects consumption. Finally, downstream markets adjust to the shock by substituting towards cheaper inputs of production, such as better chemical precursors and technologies to produce more cocaine per hectare, by demanding more cocaine from other source countries, or by switching to better transportation techniques, partially offsetting the effect of the shock on the supply of cocaine.

Total coca cultivation in Colombia was about 80,000 hectares during our period of analysis. Reducing this by 1% (800 hectares), would cost the United States $20–$27 million dollars per year. However, this investment would reduce the supply of cocaine in its territory only by about 0.0025%, which equals 12.5 kg. This implies that the marginal cost to the United States of reducing retail quantities of cocaine by 1 kg by subsidizing aerial spraying in Colombia is in the order of $1.6–$2.16 million dollars. These are large magnitudes but are similar to the estimates reported by Mejia and Restrepo (2015) using an entirely different methodology. To put them in perspective, the price of 1 kg of cocaine in retail markets is about $150,000 per kilogram.

produces a mix between the ATT and ATE), while regression discontinuity estimates a local effect. Second, there may be more reallocation of crops to the exclusion region near the 10 km cutoff. This implies that this indirect margin is more relevant for the regression discontinuity estimates, making them overstate the deterrent effect.