Under prohibition, the management of illicit drug markets tends to combine (the worst of) two systems of social organization “free” and unregulated markets and coorcive government control. In this context it is not uncommon for governments to wage war on parts of their own and others population in the name of protecting society. Such policies also produce feedback-effects that generally call for ever more coercive controls. Good governance in this field is more likely to be produced by the formation of institutions that enable state, market and societal actors to establish social contracts rather than having such actors standing opposed to each other. This research proposal aims to analyse to analyse to what extene such institutions have come about in the historical managment of Iran’s drug problem and what options are contemplated to bring state and market forces in this field under control.