Black market

A black market is a market in which certain goods or services are routinely traded in a manner contrary to the laws or regulations of the government in power. Typical reasons why the market goes underground in this way include the desire by substantial numbers of buyers and sellers to evade restrictive government price controls or inconvenient rationing schemes, to avoid paying heavy taxes on the good or service in question, or simply to be able to obtain forbidden goods or services that the government does not want the people to have at all.

Government and the black market

Governments govern by creating and assigning property rights and by more or less continually modifying these rights. Some rights modifications made by government prevent the property, or certain uses of property, from being exchanged in legal private markets. Almost inevitably an illegal market arises since property rights assignments have an important impact on the distribution of income and wealth. Rights in one's possession can have considerable value because of the authority they create to control the use of property. In addition, modification of another's property rights can be beneficial since rights condition behavior. Thus, an individual (or group) will seek new rights whenever use of something becomes desirable, and he will demand modification of existing rights if the modification provides incentives for others to behave in ways that benefit him (given that the benefits offset any costs associated with obtaining the rights modification.

There are many instances where private sector black markets could be prevented or severely limited through relatively inexpensive enforcement efforts. In these cases the public officials designated to prevent them are provided with a valuable set of property rights to sell. They can allow specific black marketeers to operate while preventing other potentials black marketeers from entering the illegal market. In other words, these officials can sell (and then enforce) the rights to be a monopolist in a private sector black market. All entry is illegal, but corrupt officials sell the right to produce to selected illegal firms.

External links

• Underground economy on Wikipedia
• The Underground Economy in One Page by Danny G. LeRoy, May 2010
• The Economics of Prohibition (pdf) by Mark Thornton
• Encyclopedia of white-collar & corporate crime: A - I and J-Z by Lawrence M. Salinger