Underground Gun Markets*


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     The authors thank Terrence Austin, former Director of the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) National Tracing Center, for providing ATF firearms trace data to enhance the development of their firearms enforcement programmes. Our research was supported by a grant from the Joyce Foundation and written in part while Cook and Ludwig were resident fellows at the Rockefeller Foundation's Bellagio Study and Research Center. Thanks to Joseph Peters and Bob Malme for excellent research assistance. We greatly appreciate the helpful input from Roseanna Ander, Bernard Harcourt, Rachel Johnston, Mark Kleiman, Tracey Meares, Peter Reuter, members of the Chicago Police Department's CAGE firearms team, Mike Vaughn and Peter Cunningham of the Chicago Public Schools, participants in the University of Maryland 2005 Criminology and Economics Summer Workshop, seminar participants at the University of Chicago Law School, as well as the editors and anonymous referees. Any errors and all opinions are our own.


This article provides an economic analysis of underground gun markets, drawing on interviews with gang members, gun dealers, professional thieves, prostitutes, police, public school security guards and teenagers in the city of Chicago, complemented by results from government surveys of recent arrestees in 22 cities, plus administrative data for suicides, homicides, robberies, arrests and confiscated crime guns. We find evidence that transactions costs are considerable in the underground gun market in Chicago, and to some extent in other cities as well. The most likely explanation is that the underground gun market is both illegal and ‘thin’– relevant information about trading opportunities is scarce due to illegality, which makes search costly for market participants and leads to a market thickness effect on transaction costs.