Lessons from modeling the US firearms market
The United States has the world’s largest free market for firearms.
The United States suffers from the highest rates of gun violence in the high-income world. With an average of over 14,500 firearms homicides per year in 2017, the U.S. has a rate of gun homicide 4.5 per 100,000 people per year — over 13 times that of Canada (National Center for Health Statistics, 2018). Informed fundamentally by the Second Amendment, which guarantees the right of citizens to keep and bear arms, the United States also has some of the laxest laws on gun sales globally. The result is the world’s largest free market for firearms: in 2017, there were 56,638 federally licensed gun retailers in the United States and a total of over 12 million firearms sold, about 37.6% of which were supplied by foreign imports (ATF, 2019). The Small Arms Survey estimates that the United States, at 120.5 firearms per 100 people, has a higher rate of gun ownership than anywhere in the world — more than double the rate of war-torn Yemen (52.8) and thrice that of postwar Serbia and Montenegro (both at 39.1) (Karp, 2018).
A functional characterization of firearms markets is prerequisite to making informed policy decisions designed to reduce gun violence. Despite its large size and prominent role in early American industrialization (Brauer, Montolio, & Trujillo-Baute, 2017, footnote 2), the U.S. civilian firearms market remains largely uncharacterized from the point of view of economic analysis. One key limitation is data (Muggah & McDougal, 2014). We used a uniquely constructed dataset of yearly firearms prices and quantities from 1946 to 2017 to simultaneously model supply and demand.
Over our study period, inflation-adjusted prices have exhibited considerable year-to-year variation, with a significant upward shift post-1980 due to demand for increasing technological sophistication. The post-1980 period also saw a growing proportion of imported firearms as a percentage of total sales (see Figure 1).
Figure 1. Annual domestic firearms production, export, and imports (secondary y-axis) and BLS price index (primary y-axis) by year.
Competition from imported firearms spurred technological upgrading in domestic U.S. firms. Figure 2 shows that price indices of imported handguns and domestic handguns converged over the 1990s, suggesting that the price gap between the two indices is representative of a corresponding technology gap.
Figure 2. Imported (red) and domestic (green) handgun prices indices by year, plotted along with the overall inflation-adjusted BLS firearms price index (blue). 2012 = 100.
The data permitted us to model firearms supply and demand as a function of demographic, economic, political, and legal predictors, all instrumented by exogenous variables quantifying the impacts of natural disasters. Our results broadly paint a portrait of a normal industry, with a predictably upward-sloping supply curve and a satisfyingly downward-sloping demand curve. However, that was not all. We also found a number of striking peculiarities about the U.S. firearms market.
Firearms stocks and crime. Levels of existing stocks are positively associated with demand: for every 1% rise in civilian firearm stocks, firearms quantity demanded rises by 1.29%. This finding may accord with the hypothesis that, by eroding property security more generally in society, firearms create their own demand. Indeed, we do find that violent crimes, including murders and mass shootings, drive demand for firearms up. Such a finding is in agreement with theoretical models of conflict in the absence of property security (Caruso, 2010), as well as empirical studies of the effects of collective insecurity on firearms demand (McDowall & Loftin, 1983). The finding specific to mass shootings also accords with recent work suggesting that these events drive up prices, and have traditionally driven down firearms manufacturers’ stock prices – until a post-2010 “new normal” emerged (Gopal & Greenwood, 2017; Jones & Stone, 2015). These findings suggest an economic justification for legal restrictions on the sales of firearms paralleling those on sales of harmful and addictive drugs, and for gun buyback programs and small arms destruction programs.
Legislation. The number of firearms laws is actually positively correlated to gun sales. Far from dampening overall sales volumes of firearms, gun legislation may either make legal purchase and ownership clearer and easier, or simply do little besides stoke fears of impending firearms shortages. The major exception to this rule is the U.S. Federal Assault Weapons Ban (FAWB), signed into law in 1994 by then-President Clinton and allowed to expire 10 years later by then-President Bush, which we credit econometrically with a 0.45% drop in domestic firearms production for U.S. markets. These empirical findings may corroborate both seemingly-antithetical claims that gun legislation largely has no significant effect on gun sales (Polsby, 1994), and the observations of the FAWB did in fact reduce the total availability of weapons on the market (Koper & Roth, 2002). This result may imply that firearms legislation only curbs volumes on the market when it involves an outright ban on some category of weapon. It may also imply that the gun lobby need not be concerned by the prospect of common-sense gun safety legislation.
War. In terms of U.S. exports, we find that U.S. military campaigns abroad indeed have a positive effect on quantity supplied, and that the number of U.S. military veterans is correlated with quantity demanded abroad. These predictors are not significant in the case of domestically-sold firearms, suggesting that the U.S. military plays a role either in enhancing the capacity of U.S. firearms firms to compete or enter markets abroad, or in the destabilization of countries that then become markets for U.S. firearms manufacturers.
In summary, our study (currently under peer review) goes some way towards illuminating a market that has long resisted characterization.
This article was authored by Topher L. McDougal, PhD, Associate Professor of Economic Development, Joan B. Kroc School of Peace Studies, University of San Diego, USA, Daniel Montolio, PhD, Associate Professor of Economics, University of Barcelona, Spain and Jurgen Brauer, PhD, Emeritus Professor of Economics, Hull College of Business, Augusta University, Augusta, GA, USA; Visiting Professor of Economics, EBA Program, Faculty of Economics, Chulalongkorn University, Bangkok, Thailand