Face Value: Information and Signaling in an Illegal Market
AbstractEconomists 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 InfoArticle provided by Southern Economic Association in its journal Southern Economic Journal.
Volume (Year): 79 (2013)
Issue (Month): 3 (January)
Other versions of this item:
- Trevon Logan & Manisha Shah, 2009. "Face Value: Information and Signaling in an Illegal Market," NBER Working Papers 14841, National Bureau of Economic Research, Inc.
- D4 - Microeconomics - - Market Structure and Pricing
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- J4 - Labor and Demographic Economics - - Particular Labor Markets
- K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
- L8 - Industrial Organization - - Industry Studies: Services
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