Perfecting Criminal Markets

Abstract

From illicit drugs to human smuggling to prostitution, legislators may actually be perfecting the very criminal markets they seek to destroy. Criminal laws often create new dangers and new criminal opportunities. Criminalizing drugs creates the opportunity to sell fake drugs. Raising the penalties for illegal immigration increases the risk that smugglers will rely on dangerous methods that can injure or kill their human cargo. Banning prostitution increases the underground spread of sexually transmitted disease. Lawmakers traditionally respond to these “second order” problems in predictable fashion — with a new wave of criminalization that imposes additional penalties on fake drug dealers, dangerous human smugglers, and HIV-positive prostitutes.

But what lawmakers fail to recognize is that the criminalization of these second order activities also improves the criminal markets that gave them birth. Criminalizing the sale of fake cocaine improves the market for genuine drugs by reducing users’ risk that they will be sold “bad product.” Those contemplating illegal immigration, less fearful of being injured or killed, will be willing to pay more for assistance across the border. The total quantity of prostitution will rise when the law makes sex for hire safer. In sum, efforts to criminalize and punish second order crimes may, inadvertently, bolster the very criminal markets that legislatures originally sought to eradicate.

This article suggests that the perfection of criminal markets is not just a quirky economic irony. The dynamic relationship between first and second order crimes is relevant to the formation of sound criminal justice policy and it can help explain the rapid expansion of the criminal code and the growing complexity of federal and state sentencing guidelines. Recognizing that criminalization can actually improve black markets may change how people think about criminal law in relation to other forms of regulation and may de-stigmatize policy alternatives that improve public welfare by making illegal activity safer.

Keywords: Criminal Law, Law and Economics