Shedding Light on the Dark: The Impact of Legal Enforcement on Darknet Transactions

Jason Chan (), Shu He (), Dandan Qiao () and Andrew Whinston ()
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Jason Chan: Information and Decision Sciences, Carlson School of Management, University of Minnesota, Minneapolis, Minnesota 55455
Shu He: Information Systems and Operations Management, Warrington College of Business, University of Florida, Gainesville, Florida 32611
Dandan Qiao: Information Systems and Analytics, National University of Singapore, Singapore 117418
Andrew Whinston: Information, Risk and Operations Management, University of Texas at Austin, Austin, Texas 78713

Information Systems Research, 2024, vol. 35, issue 1, 145-164

Abstract: Darknet markets have been used increasingly for the transaction of drugs in the last decade. The growth of illicit drug transactions on darknet markets has led enforcement agencies to invest a greater proportion of time and effort to monitor and crack down on criminal activities on darknet websites. Whereas large-scale site-shutdown efforts involving policing agencies across various countries can help in slowing down the growth of these markets, such enforcement strategies may not be sustainable in the long run given the cost and time they require to coordinate. Thus, there is a need for alternative, cost-efficient strategies to police darknet markets on a regular basis. In response, this study attempts to empirically evaluate and quantify the effectiveness of selectively targeting large drug vendors on darknet sites. Using data from the three largest darknet markets, we employ a difference-in-differences procedure to assess the impact of the arrest of a major drug dealer on subsequent darknet activities. Specifically, we contrast various outcomes from the policed site (Silk Road 2) with those from nonpoliced sites (Agora and Evolution) and find that enforcement efforts on the policed site reduced subsequent transaction levels and the number of remaining vendors. The enforcement was not only effective in deterring users in the same country as the arrestees, but also had a spillover effect on darknet participants who were beyond the prosecutorial jurisdictions of the arrestees. Test results on heterogeneous effects further suggest that small darknet drug vendors were most deterred by the arrest event and drug vendors selling dangerous drugs were more deterred relative to those selling less dangerous drugs. Our findings have policy and theoretical implications for law makers, enforcement agencies, and academics.

Keywords: econometrics; deterrence theory; cybercrime; drug markets; darknet (search for similar items in EconPapers)
Date: 2024
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