Can criminal laws improve existing black markets?

David Michael Jaros


Permission Requested: David Michael Jaros, Perfecting Criminal Markets , 112 Columbia Law Review 1947 (December, 2012) (210 Footnotes)


      Can criminal laws improve existing black markets? An unexamined category of laws may actually make black markets more efficient. Laws that criminalize the sale of fake cocaine can improve the market for genuine drugs by reducing the risk that users will buy “bad product.” Laws that enhance penalties for alien smugglers who injure or kill their human cargo may increase immigrants' willingness to pay “coyotes” or “snakeheads” to transport them across borders. From prostitution to human smuggling to back-alley abortions, legislators may actually be bolstering the very criminal markets that they seek to destroy.

      That the criminalization of an activity may actually improve related criminal markets has profound implications for criminal justice policy and our normative understanding of criminal law. By recognizing the impact that new criminal laws can have on existing black markets, policymakers can design more effective criminal justice policies and better evaluate the true cost of criminalization. Moreover, recognition that criminal law can facilitate crime may change how society perceives alternatives to criminalization. Critics often disparage harm-reduction strategies such as needle-exchange programs because they theoretically encourage illegal activity. But if criminal laws similarly foster illegal behavior, then neither criminalization nor its alternatives should occupy the moral high ground.

      In a basic sense, lawmakers are in the business of creating criminal markets. All forms of regulation have the potential to drive unwanted behavior underground. Criminalizing the sale of illicit drugs creates a black market for drugs. Closing the borders creates a market for human smuggling. But criminal laws create secondary dangers and new criminal opportunities as well. Criminalizing drugs creates the opportunity to sell fake drugs. Raising the penalties for facilitating illegal immigration increases the risk that smugglers will rely on dangerous methods that can injure or kill their human cargo.

      Lawmakers respond to these new problems in predictable fashion--with second waves of criminalization and enhanced penalties. More than thirty-five states have made it a crime to sell fake drugs. Under federal law, if a smuggler causes his human cargo “serious bodily injury,” the maximum sentence he faces increases from ten years to twenty. Should the immigrant die in transit, the smuggler can receive a life sentence or even the death penalty.

      What lawmakers fail to recognize is that the criminalization of these “second-order” activities, while perhaps protecting society from significant harm, also corrects inefficiencies in the criminal markets that gave them birth. By criminalizing and enhancing the penalties for activities like selling fake drugs, dangerous human smuggling, HIV-aware prostitution, dealing drugs while armed, and performing deadly back-alley abortions, lawmakers may strengthen the very criminal markets that they originally sought to eliminate.

      One of the great benefits of applying economic theory to the study of law is its capacity to identify unexamined assumptions and open uncultivated subjects to further inquiry. An examination of the impact of second-order crimes on first-order criminal markets raises basic questions about the practical and normative implications of using the criminal law to fight antisocial behavior.

      Drawing on economic theory, cognitive psychology, and game theory, this Article examines the complicated dynamic between related criminal markets. Many scholars and policymakers have presumed that criminal laws deter bad behavior by increasing the cost of engaging in antisocial activity. This view has led policymakers to avoid alternative forms of regulation for fear that they would encourage undesirable activities. By taking this theory of deterrence on its own terms and provisionally accepting its assumption that potential criminals are “rational, econometrically grounded actors who weigh the qualities and probabilities of punishment before this Article demonstrates that criminal laws can encourage unwanted behavior in much the same way. As a result, policymakers need to account for the impact that criminalization has upon related criminal markets when they consider new criminal laws.

      This Article proceeds in three Parts. Part I explores how criminal laws create new opportunities to engage in antisocial behavior. While numerous scholars have explored the degree to which the criminal justice system increases individuals' propensity to commit crimes, few legal scholars have examined the role that the criminal law plays in creating new criminal markets. This occurs in two distinct ways. First, criminal laws can create demand for new types of harmful goods and services that are subsequently criminalized. Second, criminalization can create new criminal opportunities by pushing markets underground where the government is unable to use regulatory tools that might prevent the new antisocial activity.

      Part II examines how lawmakers inadvertently improve criminal markets when they seek to deter harmful second-order activities. While imposing considerable costs on society generally, second-order criminal conduct can create inefficiencies in related, first-order criminal markets by generating asymmetries of information, diminishing competition, and increasing the cost of illegal activity. By deterring second-order crimes, policymakers inadvertently strengthen the very criminal markets that they originally sought to eradicate.

      Part III describes some broad implications of perfecting criminal markets. The dynamic relationship between first- and second-order crimes is not only relevant to the formation of sound criminal justice policy, it can also help explain the rapid expansion of criminal codes that has been the subject of considerable consternation and academic debate. Moreover, the recognition that criminal laws actually improve black markets may change how we think about criminalization in relation to other policy options. Focusing attention on the ways in which criminal laws facilitate crime may help to destigmatize alternative harm-reduction policies that improve public welfare by reducing the social costs of illegal activity.

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