Price Behavior in Illegal Markets

In this book the author analyzes prices in illegal markets and compares them to price behaviour in legal markets. Data is analyzed for three markets - drugs, foreign exchange and labour - where both legal goods and their illegal substitutes are traded. Statistical tests of the properties of the price series are analyzed to discern whether differences in price volatility can be detected based on legal status. The author introduces the underground economy, and reviews previous models of illegal economic behaviour. She tests the hypotheses about price volatility using the drug market and compares black markets for foreign exchange in four Latin American countries with official exchange markets. She examines how labour markets in the United States that employ illegal immigrants compare with labour markets with relatively few illegal immigrants. She emphasizes that average values and measures of dispersion convey distinct information about a distribution. Finally, the hypothesis that price dispersion may be affected by the legal status of a good is reviewed and the results for the three markets are re-examined.