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Face Value: Information and Signaling in an Illegal Market

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  • Trevon D. Logan

    ()
    (The Ohio State University and NBER, 410 Arps Hall, 1945 North High Street, Columbus, OH 43210, USA; corresponding author.)

  • Manisha Shah

    ()
    (University of California, Los Angeles and NBER, 3250 Public Affairs Building, Los Angeles, CA 91195;)

Abstract

Economists argue that rich information environments and formal enforcement of contracts are necessary to prevent market failures when information asymmetries exist. We test for the necessity of formal enforcement to overcome the problems of asymmetric information by estimating the value of information in an illegal market with a particularly rich information structure: the online market for male sex work. We assemble a rich data set from the largest and most comprehensive online male sex worker Web site to estimate the effect of information on pricing. We show how clients of male sex workers informally police the market in a way that makes signaling credible. Using institutional knowledge, we identify the specific signal male sex workers use to communicate quality to clients: face pictures. We find that there is a substantial return to the signal in this market. The findings provide novel evidence on the ability of rich information environments to overcome problems of asymmetric information without formal enforcement mechanisms. doi: http://dx.doi.org/10.4284/0038-4038-2011.119

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 79 (2013)
Issue (Month): 3 (January)
Pages: 529-564

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Handle: RePEc:sej:ancoec:v:79:3:y:2013:p:529-564

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Cited by:
  1. Karla Hoff & Mayuresh Kshetramade & Ernst Fehr, 2011. "Caste and Punishment: the Legacy of Caste Culture in Norm Enforcement," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 121(556), pages F449-F475, November.
  2. Cunningham, Scott & Kendall, Todd D., 2011. "Prostitution 2.0: The changing face of sex work," Journal of Urban Economics, Elsevier, vol. 69(3), pages 273-287, May.
  3. Jason Chan & Anindya Ghose, 2012. "Internet's Dirty Secret: Assessing the Impact of Online Intermediaries on the Outbreak of Sexually Transmitted Diseases," Working Papers, NET Institute 12-07, NET Institute, revised Sep 2012.

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