Smuggling , Camouflaging , and Market Structure
نویسندگان
چکیده
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, t e market price is below the price when all sales are legal, so smuggling improves wel 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. *We thank Mark Bagnoli, Sue Collins, James Currie, Gay Dannelly, Alan Deardorff, C. A. Knox Lovell, Arvind Panagariya, Richard Porter, Joel Slemrod, Lawrence Summers, and participants of seminars at the University of Michigan and Midwest International Economics Meetings for insightful suggestions. This paper was written while the Thursbys were on leave at The University of Michigan. Jensen acknowledges support from National Science Foundation under grants RII8610671, IST8510068, and the Commonwealth of Kentucky under the Kentucky EPSCOR Program. Marie Thursby acknowledges support from the Ford Foundation and National Science Foundation under grants IST8510068 and RII8600404. ?19 The Sumner and Laura Foster Library The University of Michigan
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