TY  - JOUR
AU  - Logan,Trevon
AU  - Shah,Manisha
TI  - Face Value: Information and Signaling in an Illegal Market
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14841
PY  - 2009
Y2  - April 2009
UR  - http://www.nber.org/papers/w14841
L1  - http://www.nber.org/papers/w14841.pdf
N1  - Author contact info:
Trevon Logan
The Ohio State University
410 Arps Hall
1945 N. High Street
Columbus, OH 43210
Tel: 614-292-0762
Fax: 614-292-3906
E-Mail: logan.155@osu.edu

Manisha Shah
Department of Economics
University of California, Irvine
3151 Social Sciences Plaza
Irvine, CA 92697
Tel: 949/824-6502
Fax: 949/824-2182
E-Mail: m.shah@uci.edu
AB  - 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 dataset from the largest and most comprehensive online male sex worker website to estimate the effect of information on pricing. We show how clients of male sex workers informally police the market in a way that makes signaling credible. Using our institutional knowledge, we also identify the specific signal male sex workers use to communicate quality to clients: face pictures. We find that there is a substantial return to information, and that it is due entirely to face pictures. Interestingly, the return is in the range of returns to information estimated for legal markets. We also provide suggestive evidence that our premium to face pictures is not being driven by a beauty premium. The findings provide novel evidence on the ability of rich information environments to overcome the problems of asymmetric information without formal enforcement mechanisms.
ER  -