NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Smuggling, Camouflaging, and Market Structure

Richard A. Jensen, Jerry Thursby, Marie Thursby

NBER Working Paper No. 2630 (Also Reprint No. r1670)
Issued in June 1988
NBER Program(s):   ITI   IFM

We examine how market structure and enforcement affect smuggling and welfare in a model where smuggling is camouflaged by legal sales. Conditions are given for when some, but not necessarily all, firms smuggle. With camouflaging, the market price is below the price when all sales are legal, so smuggling improves welfare if the price effect outweighs excess smuggling cost. This welfare effect is directly related to the degree of competition. Increased enforcement in this model potentially reduces welfare. The model is shown to be consistent with evidence on cigarette smuggling in the United States for 1975-1982.

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Document Object Identifier (DOI): 10.3386/w2630

Published: The Quarterly Journal of Economics, Vol. 106, No. 3, pp. 789-814, (August 1991). citation courtesy of

 
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