By Donald Kenkela, and Grace Phillips
This paper discusses the long- standing illegal markets for cigarettes and the more recently emerged illegal markets for e- cigarettes. We identify three distinctive market fundamentals that help explain many features of the illegal markets. First, in contrast to some illegal goods, many countries have sizable legal markets for cigarettes and e-cigarettes alongside the illegal markets. In 2024, tobacco products generated almost $1 trillion in revenues; e- cigarettes generated $26 billion dollars. It is estimated that illegal markets account for about 10 percent of global cigarette consumption. Second, the illegal markets have arisen to evade high excise taxes that increase prices and regulations that restrict the availability of desirable features of legal products. The taxes and regulations have been adopted as public health measures with the goal of reducing tobacco consumption; however, these same policies drive the formation of illegal markets. Third, demand- side linkages mean that taxation, regulatory, and enforcement policies targeted at legal and illegal markets
for cigarettes will affect legal and illegal markets for e-cigarettes, and vice versa. The connection between the
markets means regulatory policy for one product can drive consumers both to the illegal market for the product and to the legal and illegal market for the other product.
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 Joras Ferwerda
Criminals launder their proceeds from crime, either themselves or by paying a professional, to disguise the link between the criminal, the crime, and the proceeds. This allows the criminal to spend the proceeds more freely and lowers the chance of receiving unwanted attention from the authorities. This paper investigates the structure and dynamics of the understudied market for money laundering services. The analysis reveals that this illegal market is demand-driven and fragmented, with different forms of laundering, each requiring different steps with varying levels of risk. High search costs, specialized money launderers, and uncertainties lead to local monopolies. Demand tends to be relatively inelastic because criminals eventually need laundering services to spend their proceeds. Local monopolies, inelastic demand, and poor information flows
lead to relatively high prices for laundering. Trust issues and two-sided asymmetric information lead to a market with relationships that tend to last longer than generally expected in illegal markets.
By: Philippe Le Billona, Zelda Ladefoged, and U. Rashid Sumailac
About 3.5 million fishing vessels ply the world’s oceans, providing livelihoods and food for millions of people.
Sound management is key to fisheries’ sustainability, but illegal fishing, along with fishing overcapacity generally and environmental change, are putting many fisheries at risk. Illegal fishing is a globally pervasive yet unevenly distributed phenomenon, manifesting in diverse forms across both small- scale and industrial- scale fleets, the latter accounting for about 82 to 93% of the 8.4 to 15.4 million metric tons global annual illicit marine wild fish seafood trade valued at US$6.2 to 12.2 billion. The massive rise in fishing effort since 1950 has not been matched by adequate regulations and enforcement, especially for industrial scale fishing in the waters of developing countries. About two- thirds of the illicit trade by value originates from fishing grounds in West Africa (27%), East Asia (24%), and Southeast Asia (16%). Remote sensing and AI technologies are improving detection of illegal fishing, but enforcement remains an issue given its high costs and the relative ease of laundering illegal catch through transshipments at sea, poorly regulated ports, and fraudulent documentation along seafood supply chains. Illegal fishing markets require multilayered policy responses grounded in transparency, international cooperation, and socioeconomic justice. Proposed measures, ranging from mandatory electronic vessel identification and subsidy reform to artisanal fishery protections and stronger port controls, warrant further research into their implementation and effectiveness.