Building a case for trust: reputation, institutional regulation and social ties in online drug markets

Abstract

ABSTRACT In illicit online markets, actors are pseudonymous, legal institutions are absent, and predation is ripe. The literature proposes that problems of trust are solved by reputation systems, social ties, and administrative governance, but these are often measured independently or in single platforms. This study takes an eclectic approach, conceiving of trust as an estimate informed by any available evidence. Using transaction size as a proxy for trust I estimate the association between competing sources of trust – mediation, reputation, authentication, and social ties – and transaction value using multilevel regression. Using data from two online drug markets, I find mixed evidence that reputation and authentication are associated with transaction value, whereas results are consistent for social ties. Furthermore, transactions outside the scope of administrative mediation are generally larger. These findings have implications for future research and suggest increased attention should be given to the role of mediation practices and social ties.