Economics 4597.01, Issues of the Underground Economy

Economics 4597.01, Issues of the Underground Economy

Autumn, 2016

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Second Homework Assignment

Suppose that you decide to put what you are learning in this class to use in an UG economy enterprise – specifically the commercial smuggling of cigarettes from low tax states to high tax states. Your task is to identify the key opportunities and risks in establishing and operating this enterprise. I have uploaded an industry study and a couple of PDF pages that detail excise taxes by state as well as the leading tobacco growing states in the US.

You may also want to consult one of the studies done by the Mackinac Center for Public Policy, and authored in part by Ohio State’s very own Dr. Todd Nesbit. The most recent study report can be found at: http://www.mackinac.org/20900.

I would like you to outline a possible business strategy for cigarette smuggling, focusing on the two questions How? and Where? Be sure to discuss your sourcing strategy – from which states and suppliers would you obtain the cigarettes?; your distribution and marketing strategy – in which states would you sell and how would you get the product there?; and your sales strategy – what firms or individuals would you need to involve to sell your product? In addition, please comment on the ways in which you would hope to avoid detection, arrest, and prosecution by the FBI, local police, and other government agents.

Finally, without doing a great deal of additional research (or more likely – Wikipedia surfing), do you believe the same opportunities would be available in smuggling liquor from one state to another? What logistical features of this new ‘opportunity’ might make it more difficult or less profitable than cigarette smuggling?