The Price of Illegality: Market Knowledge and Valuation in Syrian Hawala Networks

• In Event: 4140 - Debt, Finance, and Financialization

Abstract

How do market actors set prices for illegal transactions? Economic sociologists often highlight the unique facets of markets that operate outside or against the law. But few studies have investigated how illegality shapes micro-level economic action, like pricing. In this paper, I examine the effect of illegality on pricing, by studying a unique market setting in which actors engage in both illegal and informal transactions. An informal system for transferring funds across borders, hawala has become the primary channel for transferring money into, out of, and across Syria. The study draws on eighteen months of fieldwork on hawala, including 117 interviews with hawala agents and customers and an experimental audit study of 119 Syrian agents in Turkey. I investigate how agents’ price-setting behavior varies across two dimensions: the transfer destination and the customer type. First, I compare prices for transfers to government-controlled Damascus, where hawala is illegal, and rebel-held Idlib, where no legal regime toward hawala exists. Second, I compare price quotes for refugees sending remittances and those for NGOs sending aid. The findings from the audit study show that for illegal transactions prices are 27% higher and 2.2 times more dispersed than for informal transactions. Further, prices offered to refugees are 21% higher and 1.7 times more dispersed than those offered to NGOs. Interview data suggest that these patterns can best be explained by agents’ and customers’ differential access to market knowledge. The study provides concrete evidence on the cost of illegality and its uneven distribution across market actors.

Author

• Gozde Guran, Princeton University