Forbidden Transactions and Black Markets

 Here's a paper that was just published early online. (Only now do I see that I left out the middle initial I always use, but I'm one of the coauthors...)  

The idea of the paper is to understand when a repugnant transaction can be effectively banned, versus when a ban will lack sufficient social support to succeed. We present a simple to state (but tricky to analyze) model of conditions in which banning a market is likely to lead to a difficult to extinguish black market.

Two prominent examples are narcotic drugs (big black market) and hired killers (not so much, at least in the U.S.).  So we could have called the paper Heroin and Hitmen. (Hitmen were little more than a metaphor in this paper, but I expect to say a bit more about the actual market for hitmen in tomorrow's post.)

 Chenlin Gu, Alvin Roth, Qingyun Wu (2022) Forbidden Transactions and Black Markets. Mathematics of Operations Research  Published online in Articles in Advance 28 Jan 2022  . https://doi.org/10.1287/moor.2021.1236  (It's an open access article, so you can read the full paper: here's the pdf.)

 Abstract: "Repugnant transactions are sometimes banned, but legal bans sometimes give rise to active black markets that are difficult if not impossible to extinguish. We explore a model in which the probability of extinguishing a black market depends on the extent to which its transactions are regarded as repugnant, as measured by the proportion of the population that disapproves of them, and the intensity of that repugnance, as measured by willingness to punish. Sufficiently repugnant markets can be extinguished with even mild punishments, while others are insufficiently repugnant for this, and become exponentially more difficult to extinguish the larger they become, and the longer they survive."

Here are the first two paragraphs of the introduction:

"Why are drug dealers plentiful but hitmen scarce? That is, why is it relatively easy for a newcomer to the market to buy illegal drugs but hard to hire a killer? Both of those transactions come with harsh criminal penalties, vigorously enforced: in the United States, almost half of federal prisoners have drug convictions,1 and murder for hire2 is treated as a federal crime for both the buyer and the hitman.3

More generally, many transactions are repugnant, in the specific sense that they meet two criteria: some people want to engage in them, and others think that they should not be allowed to do so (Roth [48]). But only some repugnances become enacted into laws that criminalize those transactions, and only some of those banned markets give rise to active, illegal black markets. Only some of those black markets are so active yet so difficult to suppress that the laws banning them are eventually changed so as to allow the transactions that cannot be suppressed to be regulated. Laws that exact harsh punishments but are ineffective at curbing the transactions that they punish may come to be seen as causing harm themselves. Some well-known examples include Prohibition era laws against selling alcohol in the United States or laws in much of the world that once banned homosexual sex (and, in some places, still do)."