Date Added: Dec 2009
Economists argue that rich information environments and formal enforcement of contracts are necessary to prevent market failures when information asymmetries exist. The authors 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. They assemble a rich dataset from the largest and most comprehensive online male sex worker website to estimate the effect of information on pricing. They show how clients of male sex workers informally police the market in a way that makes signaling credible.