English, Article, Journal or magazine article edition: Face Value: Information and Signaling in an Illegal Market Trevon Logan; Manisha Shah

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Bookmark: http://trove.nla.gov.au/version/104690
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Face Value: Information and Signaling in an Illegal Market
Author
  • Trevon Logan
  • Manisha Shah
Physical Description
  • preprint
Notes
  • 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 dataset from the largest and most comprehensive online male sex worker website 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 our institutional knowledge, we also identify the specific signal male sex workers use to communicate quality to clients: face pictures. We find that there is a premium to information and that it is due entirely to face pictures. More importantly, the premium is in the range of premiums to information estimated for legal markets. We also show that the evidence is inconsistent with alternative explanations such as beauty premiums. The findings provide novel evidence on the ability of rich information environments to overcome the problems of asymmetric information without formal enforcement, and show that the value of information in illegal markets is similar to its value in legal markets.
  • RePEc:nbr:nberwo:14841
Language
  • English
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