Seminar Series

Darknet markets have been increasingly used for the transaction of illegal products and services in the last decade. In particular, it is estimated that drugs make up two-thirds of darknet market transactions. The growth of illicit transactions on darknet markets have led enforcement agencies to invest a greater proportion of time and efforts to monitor and crack down on criminal activities on the darknet websites. However, it remains unknown whether these policing efforts are truly effective in deterring future darknet transactions, given that the identities of the transacting parties are well protected by the markets’ features and that these participants may migrate to other darknet platforms to transact. To this end, this study attempts to empirically evaluate the susceptibility of darknet transactions breaking down upon policing of participants on the platform. Using data from the three largest darknet markets, we rely on a difference-in-difference procedure to assess the impact of an exogeneous arrest shock on future transaction levels, by contrasting various outcomes from the policed site with those from the non-policed sites. Our analyses found that enforcement efforts produce a negative effect on subsequent transactions on the policed site, for both vendors in the same country and in different countries as that of the arrested perpetrators. Not only did the average number of transactions per vendor decreased, we also found that the number of active vendors that remained on the site dropped significantly. We do not see any migratory behaviors to other major sites during the study period. Furthermore, we find heterogeneity effects in the enforcement effort, wherein small vendors and vendors with short site tenure are relatively more affected by the arrest shock. Study findings have policy and theoretical implications to lawmakers, enforcement agencies, and academicians.

TBD

Gord Burtch, Boston University