Trafficking in Persons: An Economic Perspective Part 2 of 3

Abstract:     
The TIP market consists of three players: the trafficker, the traffickee and the government. It is often fraught with agency problems of asymmetric information, moral hazard, divergent beliefs and incomplete contract between the traffickers and traffickee where the former often use psychological threat, physical coercion, fraud and deception so as to exploit the latter. Governments with strong institutional frameworks will respond by stepping in to correct this market failure by enacting/enforcing the Protocol in the Palermo Convention which empowered the traffickee to retaliate through surplus destruction. Against this backdrop, we used game theory to model the strategic interaction among these players and derived strategy profiles where tacit collusion between the TIP traffickers and traffickees will always be sustained. We next examine the prerequisite public policies for successful government interventions so that the optimal strategy profiles which correct this market failure could materialize. For empirical verification we used the UNODC dataset containing TIP at the national level, number of police offenses to assess whether OECD1 nations’ stronger compliance to and enforcement of the Protocol of the Palermo Convention led to lower incidences of TIP. We noted that the development status as measured by the GDP per capita, and the openness of the economy 2 as measured by the ratio of import to GDP have relatively strong influence on the human trafficking rates. The empirical exercise indicates that good institution does play a role in reducing the human trafficking rate in spite of rising openness exacerbated by globalization and rising affluence proxied by increasing GDP per capita.

Number of Pages in PDF File: 27

Keywords: Palermo Convention, gradualism, surplus destruction, trembling hand perfection

JEL Classification: C73, O15

working papers series