convergence

Picard
prohibited, taxed, or regulated. Indirect impacts include effects that are more diffuse or difficult
to quantify (for example, erosion of the social fabric and the role of the state). We therefore
decided to focus on crime-related effects for which means of quantification exist and that
probably integrate at least some part of the intangible costs. Using the results of studies on the
economic cost of drug abuse, we inferred that each dollar spent on the illicit drugs generates
an overall cost of crime of slightly more than $1.50. As we do not dispose of equivalent studies
for other illegal markets, we conjectured that this cost of crime over market size ratio could
be applied to other markets. When estimates on market size exist, we can therefore estimate
their indirect impact using this cost of crime ratio.
Measuring direct impacts requires making a number of assumptions regarding economic
valuation of the harm, although in most cases we can rely on studies and data sets to support
them. The method is applied to the five illegal markets studied at the beginning of the chapter,
and also for conflict resources although a global estimate was not provided. Going through
the calculations illustrated the various choices that need to be made on the data sources, as
well as the assumptions that are necessary, especially when data are lacking and must be supplemented
by data on a different region or a different illegal market. Furthermore, the data
and statistics that were fed into the model count themselves on multiple data sources and
assumptions, which in most cases were selected for their scientific legitimacy or because they
were coming from the organizations that have the best access to field data. The outcome is an
estimated impact on the order of more than $1.5 trillion per year. While this number does
not claim precision and relies on spelled-out assumptions, it should be taken as suggestive of
the order of magnitude of the impacts. Another observation is that the total market size of the
five studied illegal markets used in the application of the model is a bit less than $300 billion.
This is five times less than the estimated impacts, indicating that, indeed, the effects of illicit
markets matter more than their size.
Acknowledgments
The author would like to acknowledge that much of the intellectual input and stimulus for
this chapter comes from discussions held at the World Economic Forum Global Agenda
Council on Illicit Trade. Special thanks to Mariya Polner, Sandeep Chawla, Richard Danziger,
Helena Leurent, and the editors for reading and providing extremely useful feedback
on earlier versions.
Notes
1 Whack-a-mole is an arcade game in which moles pop up from their holes at random, and the aim of the game
is to force the individual moles back into their holes by hitting them directly on the head with a mallet; no matter
how adept the player is at whacking the moles, they keep reappearing. The image of a “Whack-a-mole problem” is
used when enforcement actions seem to have no lasting impact in addressing the problem. See, for example, Illicit
Tobacco: Various Schemes Are Used to Evade Taxes and Fee, U.S. GAO Report GAO-11-313 (March 2011), available
at .
2 Bruce Schneier, “The Global Illicit Economy,” Schneier on Security blog, September 8, 2009, available at
.
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