Addiction and Illegal Markets

Shingo Ishiguro (), Sultan Mehmood, Avner Seror and Daniel Chen
Additional contact information
Shingo Ishiguro: Graduate School of Economics - Osaka University - Osaka University [Osaka]
Daniel Chen: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

Working Papers from HAL

Abstract: This paper studies dynamic contracts in illegal addictive markets where individuals' tastes for addictive goods develop through prolonged consumption and contract enforcement is limited. Our theoretical analysis uncovers the optimality of a 'freefirst-dose' strategy where sellers intensify buyers' addiction by offering consumption credit to newcomers. We show that buyers default a certain portion of the debts for early period consumption but are never imposed any penalty on the equilibrium path. This implies that illegal markets might favor non-violent interactions over violent ones, defying the stereotypical association of illegality with violence. Meanwhile, in illegal gambling markets, a distinct equilibrium phenomenon known as the long-shot bias emerges due to the influence of addiction, illustrating another complex dynamic within these markets. We discuss the implications of the model in the context of illegal sports wagering, narcotics, and religious sects.

Keywords: Addiction; Dynamic Contracts; Illegal Markets (search for similar items in EconPapers)
Date: 2024-09-25
Note: View the original document on HAL open archive server: https://hal.science/hal-04792970v1
References: Add references at CitEc
Citations:

Downloads: (external link)
https://hal.science/hal-04792970v1/document (application/pdf)

Related works:
Working Paper: Addiction and Illegal Markets (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-04792970

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().