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Black market

A black market, underground economy, or shadow economy is a clandestine market or series of transactions that has some aspect of illegality or is not compliant with an institutional set of rules. If the rule defines the set of goods and services whose production and distribution is prohibited or restricted by law, non-compliance with the rule constitutes a black-market trade since the transaction itself is illegal. Such transactions include the illegal drug trade, prostitution (where prohibited), illegal currency transactions, and human trafficking.[1] [2][3]

"Black Market" and "Black money" redirect here. For other uses, see Black Market (disambiguation) and Black money (disambiguation).

Participants try to hide their illegal behavior from the government or regulatory authority.[4] Cash is the preferred medium of exchange in illegal transactions, since cash transactions are less easily traced.[5] Common motives for operating in black markets are to trade contraband, avoid taxes and regulations, or evade price controls or rationing. Typically, the totality of such activity is referred to with the definite article, e.g., "the black market in bush meat".


The black market is distinct from the grey market, in which commodities are distributed through channels that, while legal, are unofficial, unauthorized, or unintended by the original manufacturer, and the white market, in which trade is legal and official.


Black money is the proceeds of an illegal transaction, on which income and other taxes have not been paid, and which can only be legitimised by some form of money laundering. Because of the clandestine nature of the black economy, it is not possible to determine its size and scope.[6]

They may be cheaper than legal market prices. The does not have to pay for production costs and/or taxes. This is usually the case in the underground economy. Criminals steal goods and sell them below the legal market price, but there is no receipt, guarantee, and so forth. When someone is hired to perform work and the client is unable to write off the expense (particularly common for work such as home renovations or cosmetological services), the client may be inclined to request a lower price (usually paid in cash) in exchange for foregoing a receipt, which enables the service provider to avoid reporting the income on his or her tax return.

supplier

They may be more expensive than legal market prices. For example, if the product is difficult to acquire or produce, dangerous to handle, is strictly rationed, or is not easily available legally if at all. If exchange of goods is made illegal by some sort of sanction, such as with certain drugs or wildlife trafficking,[14] their prices will tend to rise as a result of that sanction.

state

Goods and services acquired illegally and/or transacted for in an illegal manner may exchange above or below the price of legal market transactions:

They may prefer legal suppliers, as these are strictly regulated and easier to contact. In contrast, black market vendors are unregulated and difficult to hold accountable;

In some jurisdictions such as the , customers may be charged with a criminal offense if they knowingly participate in the black economy;[16]

United States

They may have a moral dislike of black marketing;

In some jurisdictions such as , consumers found in possession of stolen goods can have them confiscated if they are traced, even if they did not know they were stolen. Though they themselves do not usually face criminal prosecution, they are still left without the goods they paid for and have little if any recourse to get their money back. This may make some averse to buying goods that they think may be from the underground market, even if in fact they are legitimate (for example, items sold at a car boot sale).

England and Wales

Even when the underground market offers lower prices, consumers may still buy on the legal market when possible, because:


However, in some situations, consumers may conclude that they are better off using black market services, particularly when government regulations hinder what would otherwise be a legitimate competitive service. For example, in Baltimore, many consumers actively prefer illegal taxi cabs, citing that they are more available, convenient, and fairly priced.[17]

The government sets ("pegs") the local currency at some arbitrary level to another currency that does not reflect its true market value. Certain purchases of foreign currency may be permitted at the official rate; otherwise a less favourable black market rate applies.

A government makes it difficult or illegal for its citizens to own much or any foreign currency.

The government taxes officially exchanging the local currency for another currency, or vice versa.

Causes[edit]

Wars[edit]

Black markets flourish during wartime. States engaged in total war or other large-scale, extended wars often impose restrictions on use of critical resources that are needed for the war effort, such as food, gasoline, rubber, metal, etc., typically through rationing. A black market then develops to supply rationed goods at exorbitant prices. The rationing and price controls enforced in many countries during World War II encouraged widespread black market activity.[57] One source of black-market meat under wartime rationing was farmers declaring fewer domestic animal births to the Ministry of Food than had actually happened. Another in Britain was supplies from the U.S., intended only for use on U.S. army bases on British land, but leaked into the local native British black market.


For example, in the Parliament of the United Kingdom on February 17, 1945,[58] members said that "the whole turkey production of East Anglia had gone to the black market" and "prosecutions [for black-marketing] were like trying to stop a leak in a battleship", and it was said that official prices of such foods were set so low that their producers often sold their produce on the black market for higher prices; one such route (seen to operate at the market at Diss, Norfolk) was to sell live poultry to members of the public; each purchaser would sign a form promising that he was buying the birds to breed from, but then take them home for eating.


During the Vietnam war, American soldiers would spend Military Payment Certificates on maid service and sexual entertainment. Also if a Vietnamese civilian wanted something that was hard to get, he would buy it at double the price from one of the soldiers, who had a monthly ration card and thus had access to the military stores. The transactions ran through the on-base maids to the local populace. Although these activities were illegal, only flagrant or large-scale black-marketeers were prosecuted by the military.

Laws and regulations[edit]

A classic example of new regulation creating a black market is the prohibition of alcohol. When such a law disappears, so does the black market. Sin taxes — taxes levied on harmfully deemed products such as alcohol and tobacco — may increase the black market supply.[59] One argument for legalizing marijuana is the elimination of the black market, and taxes from that economy becoming available for the government.

Aligicia, Paul Dragos (2008). . In Hamowy, Ronald (ed.). The Encyclopedia of Libertarianism. Thousand Oaks, CA: Sage; Cato Institute. pp. 36–37. doi:10.4135/9781412965811.n22. ISBN 978-1412965804. LCCN 2008009151. OCLC 750831024.

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Journal of Economic Literature

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SSRN

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"Professor Schneider's Shadow Economy: What do we really Know? A Rejoinder"

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doi

Havocscope Black Markets – Database and statistics on black market activities

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Official March 2000 French Parliamentary Report on the obstacles on the control and repression of financial criminal activity and of money-laundering in Europe

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The Effects of a Black Market Using Supply and Demand