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Traders, cops and robbers

Anderson, James E. and Bandiera, Oriana (2003) Traders, cops and robbers. 9572. National Bureau of Economic Research, Cambridge, MA., USA.

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Abstract

Why does illegal trade often flourish without formal enforcement, but sometimes fail? Why do illegal tradereducing 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.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.nber.org
Additional Information: © 2003 James E. Anderson and Oriana Bandiera
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Sets: Collections > Economists Online
Departments > Economics
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 9572
Date Deposited: 07 May 2008 16:11
URL: http://eprints.lse.ac.uk/4720/

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