Why does illegal trade often flourish without formal enforcement, but sometimes fail? Why do illegal trade-reducing policies often fail? Why do States often appear to tolerate illegal trade? A model of trade with cops and robbers provides answers. `Safety in numbers' is a key element: the equilibrium probability of successful shipments is increasing in trade volume. Even without conventional fixed costs, safety in numbers implies scale economies which can explain the absence or robustness of trade subject to predation. Spilling over between markets, safety in numbers implies that illegal trade can foster legal trade and State revenue.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
9572.
Length: Date of creation: Mar 2003 Date of revision: Handle: RePEc:nbr:nberwo:9572
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Find related papers by JEL classification: F1 - International Economics - - Trade K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
James E. Anderson & Douglas Marcouiller, 1997.
"Trade and Security,I: Anarchy,"
NBER Working Papers
6223, National Bureau of Economic Research, Inc.
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