By Jonathan P. Caulkins

Illegal markets create untold societal and environmental harm, but they have attracted surprisingly little scholarly attention. This paper explores illegal markets as a class of objects. It considers similarities and differences across markets, with particular attention to nine: human smuggling, commercial sex, firearms, money laundering, illegal fishing, international wildlife trafficking, counterfeit goods, drugs, and tobacco products. These nine markets display enormous variation, stemming in part from differences in the “physics” of the good or service they provide. Other differences can be seen as adaptations to different policy and enforcement pressures. Some markets have changed in fundamental ways over recent decades, while others remain more stable. The overall rate of true innovation is not necessarily high, but most appear quick to
adopt innovations that are created by the larger economy such as cryptocurrencies, secure communications, and dark web distribution. Low rates of investment in research and development, branding, and marketing along with simultaneous high rates of adaptability may be a natural outgrowth of these markets being dominated by relatively small organizations. It is hypothesized that one can group the common illegal markets into those that: 1) Supply goods stolen from a common heritage, either natural (illegal fishing,
wildlife trafficking, illegal mining) or cultural (antiquities); 2) Supply goods or services to people committing crimes beyond just consuming the banned products (guns, money laundering); 3) Undermine an authority’s rights (smuggling humans across borders, counterfeiting goods, tax-evading cigarettes); and 4) Supply products that harm the user and/or seller (drugs, commercial sex, gambling, raw milk).

By Beau Kilmer

This article provides a primer on illegal drug markets, with a focus on the structure and nature of these markets and the enterprises involved. The markets for illegal drugs are large, with annual retail expenditures likely exceeding $100 billion in the United States alone. Many drugs are easy to produce, and their high value- to-weight ratios make them attractive to smugglers. Some features of illegal drug markets have been quite stable, such as the small size of retail purchases, in part because most sales are to people who use frequently and typically do not buy in bulk. Between production and consumption, most of these substances cross multiple borders—and often continents—and the mark- ups along the supply chain continue to be substantial. But there have been major changes over the past 15 y. While illegally manufactured synthetic drugs are not new, the proliferation of fentanyl and other synthetic opioids created an overdose crisis in
North America and has other countries on high alert. The internet has also made producing and accessing a wide range of drugs and their precursor chemicals easier. The emergence of cryptocurrencies has created new opportunities to hide transactions and launder the proceeds. In addition to highlighting the stability and turbulence in these markets, this article offers ideas for future research and emphasizes the need for monitoring purity-adjusted drug prices, which is critical for understanding supply changes and evaluating
interventions in these markets.