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

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.