The effective price is an index that includes the dollar price, the amount of pure heroin, the toxicity of adulterants, access time, and threats of victimization and arrest. The effective price may vary among different groups of users. The factors that determine the effective prices are the aggregate supply of heroin, the strength of the incentives that motivate suppliers to discriminate against new users, the ability of the suppliers to distinguish new users from experienced users, and the extent to which old users can act as brokers for new users. The major policy alternatives are to continue the prohibition of heroin or to allow heroin to be legally prescribed. Different enforcement strategies and levels of supervision over physicians and users create variations of these major policies. An analysis of all the factors can facilitate the design and a priori evaluation of various policies. Figures and 8 references