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 (Maskin and Riley 1984) to settings featuring prohibition and theft.
PEC: Kris Ramsay
Thu, Oct 18, 2018, 12:15 pm