Shedding Light on the Dark: The Impact of Legal Enforcement on Darknet Transactions

41 Pages Posted: 29 Oct 2019 Last revised: 23 Feb 2023

See all articles by Jason Chan

Jason Chan

University of Minnesota - Twin Cities - Carlson School of Management

Shu He

University of Florida - Information Systems and Operations Management

Dandan Qiao

National University of Singapore (NUS)

Andrew B. Whinston

University of Texas at Austin - Department of Information, Risk and Operations Management

Date Written: September 30, 2019

Abstract

Darknet markets have been used increasingly for the transaction of drugs in the last decade. The growth of illicit drug transactions on darknet markets has led enforcement agencies to invest a greater proportion of time and effort to monitor and crack down on criminal activities on darknet websites. While large-scale site shutdown efforts involving policing agencies across various countries can help in slowing down the growth of these markets, such enforcement strategies may not be sustainable in the long run given the cost and time they require to coordinate. Thus, there is a need for alternative cost-efficient strategies to police darknet markets on a regular basis. In response, this study attempts to empirically evaluate and quantify the effectiveness of selectively targeting large drug vendors on darknet sites. Using data from the three largest darknet markets, we employ a difference-in-difference procedure to assess the impact of the arrest of a major drug dealer on subsequent darknet activities. Specifically, we contrast various outcomes from the policed site (Silk Road 2) with those from non-policed sites (Agora and Evolution) and find that enforcement efforts on the policed site reduced subsequent transaction levels and the number of remaining vendors. The enforcement was not only effective in deterring users in the same country as the arrestees, but also had a spillover effect on darknet participants who were beyond the prosecutorial jurisdictions of the arrestees. Test results on heterogeneous effects further suggest that small darknet drug vendors were most deterred by the arrest event and that drug vendors selling dangerous drugs were more deterred relative to those selling less dangerous drugs. Our findings have policy and theoretical implications for law makers, enforcement agencies, and academics.

Suggested Citation

Chan, Jason and He, Shu and Qiao, Dandan and Whinston, Andrew B., Shedding Light on the Dark: The Impact of Legal Enforcement on Darknet Transactions (September 30, 2019). NET Institute Working Paper No. 19-08, Available at SSRN: https://ssrn.com/abstract=3468426 or http://dx.doi.org/10.2139/ssrn.3468426

Jason Chan

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

HOME PAGE: http://carlsonschool.umn.edu/faculty/jason-chan

Shu He (Contact Author)

University of Florida - Information Systems and Operations Management ( email )

Warrington College of Business
ISOM Department STZ
Gainesville, FL 32611-7169
United States

Dandan Qiao

National University of Singapore (NUS) ( email )

13 computing drive
Singapore, 117591
Singapore

Andrew B. Whinston

University of Texas at Austin - Department of Information, Risk and Operations Management ( email )

CBA 5.202
Austin, TX 78712
United States
512-471-8879 (Phone)

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