Face Value: Information and Signaling in an Illegal Market

Trevon D. Logan, Ohio State University
Manisha Shah, University of Melbourne

Economists argue that rich information environments and formal enforcement of contracts are necessary to prevent market failures when information asymmetries exist. We test for the necessity of formal enforcement to overcome the problems of asymmetric information by estimating the value of information in an illegal market with a particularly rich information structure: the online market for male sex work. We assemble a rich data set from the largest and most comprehensive online male sex-worker website to estimate the effect of information on pricing. We find that the premium to information is large and that it is due entirely to face pictures. The premium is in the range of premiums to information estimated for legal markets. The findings provide novel evidence that the value of information in illegal markets is similar to its value in legal markets.