Prohibition, Theft, and Violence: Strategies of Exchange in Illicit Markets

• In Event: Crime and Organized Crime

Abstract

Why are black markets more prone to violence than their licit counterparts? Sellers in black markets face two problems largely absent from licit markets. First, they have no legal recourse if their product is forcibly stolen from them. Second, attempts at exchange may be punished by the authorities. In a simple model of monopolistic pricing, we show these forces interact to produce increased theft as prohibition enforcement increases. More broadly, we build a typology of exchange under anarchy, generalizing the standard model of monopoly under incomplete information to settings featuring prohibition and theft. We then study the effects of competition and inter-seller violence in these illicit markets.

Authors

• Brendan Cooley, Princeton University

• Colin Krainin, Princeton University

• Kristopher W. Ramsay, Princeton University