Skip to main content
SearchLogin or Signup

Drug Market Criminology: Combining Economic and Criminological Research on Illicit Drug Markets

Published in: International Criminal Justice Review 2018, Vol. 28(3) 191-205

Published onSep 30, 2020
Drug Market Criminology: Combining Economic and Criminological Research on Illicit Drug Markets


There is a divide between economic and criminological research on illicit drug markets. Economists have focused on modeling markets at an abstract level, while criminologists have focused on offending in individual street-level marketplaces. This article combines the economic and criminological research on illicit drug markets through the lens of social embeddedness theory. The analysis concerns how participants reduce the uncertainties that follow from the illegality of the product, the lack of reliable information on product quality, and the trustworthiness of the trading partner. Social embeddedness theory is reconcilable with transaction cost economics but puts more emphasis on the importance of longer term interpersonal relations and trust. Using this framework provides a middle-range interpretation for the economic irregularities observed in drug markets: how prices deviate from the competitive equilibrium and how distributors develop and maintain interpersonal trust and balance competitiveness with security concerns.


drug market, criminology, social embeddedness, economic sociology, transaction cost economics


Illicit drug distribution has been analyzed since at least the late 1960s (Carey, 1968; Preble & Casey, 1969), but little criminological research has examined the “market” aspects (Bushway & Reuter, 2008). Market is broadly understood as the exchange of goods for money under competition (Beckert & Wehinger, 2013). These issues are typically seen as being in the domain of economics and this is also where most of the theoretical (Becker & Murphy, 1988; Rasmussen, Benson, & Mocan, 1998; Reuter & Kleiman, 1986) and empirical drug market research has been conducted (e.g., Miron, 2005; Pacula, Kilmer, Grossman, & Chaloupka, 2010; Rasmussen & Benson, 1994).

In the early 2000s, there was an increased interest in illicit drug market research. Ritter (2006) reviewed five disciplinary contributions, revealing a fragmented understanding of what constitutes a market. Different social scientific disciplines ask different types of questions and examine different levels of analysis. Simplified, we may say that economists have tried to formally model the market as an abstract whole, while criminologists have researched individual street-level marketplaces. I refer to “criminology” as a traditionally sociologically and anthropologically inclined discipline (McCarthy, 2002), while recognizing that an interdisciplinary understanding of crime and control also includes economics.

Many economic irregularities still puzzle researchers (Caulkins & Reuter, 2006), but there is no criminological theory of illicit drug markets (Bushway & Reuter, 2008). A similar disciplinary divide manifests in the research on legal economic phenomena. Krippner (2001, p. 801) observed a “perverse symmetry” when “researchers either study economic processes in social terms, in which case they abandon the sphere of the market; or, they study the market as a theoretical entity in its own right, in which case they purge all social content.”

Historically, researchers working in an economic sociological tradition have attempted to unify these perspectives by explaining economic processes as a category of social action (Swedberg, 2003; Weber, 1922/1978). Here, markets are understood as “socially constructed arenas where repeated exchanges occur between buyers and sellers under a set of formal rules and informal understandings that govern relations among competitors, suppliers, and customers” (Fligstein & Dioun, 2015, p. 67). The market concept is recognized as an abstraction that gathers what is a series of markets with different levels and features. Markets in different countries at different times will vary in pricing practices and competition, depending on the surrounding legal circumstances and cultural understandings (Carruthers, 2005; Reuter & Pollack, 2012; Swedberg, 1990). Some markets are higher in “marketness” than others (Block, 1990, p. 53). The degree of marketness can be observed in the relative importance of the price consideration compared to more social concerns like status and friendship.

When compared to legal markets, illicit drug distribution is low on marketness. The constant threat of law enforcement intervention implies there are many concerns more important than maximizing profit. This hostile surrounding social context makes the distribution process uncertain. Emphasis in the criminological drug market research has been on the street level (Dorn, Levi, & King, 2005; Mieczkowski, 1988; Natarajan, 2006; Pearson & Hobbs, 2003), possibly because of the practical problems associated with recruiting participants at the higher distribution levels (but see Adler, 1985; Levitt & Venkatesh, 2000; Moeller & Sandberg, 2015, 2017; Zaitch, 2002, 2005). At the street level, sellers routinely cheat strangers (Jacques, Wright, & Allen, 2014). At the higher distribution levels, participants prioritize their security over operational efficiency (Bichler, Malm, & Cooper, 2017).

The problems that follow from uncertainty permeate all levels of the distribution process. Uncertainty is a fundamental problem for drug distribution because all markets need calculability (Carruthers, 2013; Weber, 1922/1978). Illicit drug transactions are characterized by lack of information and thus inherent incalculability (Reuter & Kleiman, 1986), but somehow the illicit drug market does not collapse. This is because offenders devise ways to reduce uncertainties and learn to trust each other, despite temptations to act opportunistically and cheat. The specificities of how they do so require a more detailed and theorized explication of the problems they confront.

Beckert and Wehinger (2013, p. 12; see also Beckert, 2009; Carruthers, 2013) proposed that this uncertainty can be conceptualized as three “coordination problems”: valuation, competition, and cooperation. In this social embeddedness perspective, valuation concerns the problems with pricing products in a transaction affected by an interpersonal relation. Above the street level, these are not anonymous transactions but take place in personalized networks where reputation is important, which restricts competitive pricing (Granovetter, 1985). Competition is hindered by the need for secrecy. Operating in direct opposition to the law means market participants must make trade-offs between their security and the efficiency of distribution (Bichler et al., 2017). Finally, participants must find ways to trust each other. The lack of contracts and formal agreements implies there are many ways to cheat or otherwise act opportunistically. In illegal markets, informal agreements must somehow mimic the function of contracts for participants to cooperate. This can be achieved with threats and violence, but overt violence may be counterproductive in the long run because it draws attention from law enforcement (Decker & Chapman, 2008; Zaitch, 2005).

The economic sociological perspective on valuation, competition, and cooperation combines an appreciation of economic efficiency, on the one hand, and social relations, on the other. This is broadly consistent with the reality of co-offending in illicit drug distribution. Offenders make choices between alternatives and apply planning, strategic thinking, and sequential decisionmaking (Cornish & Clarke, 2002)1 but are limited by their lack of information. The purpose of this article is to combine the economic and criminological research on drug markets through the lens of social embeddedness theory (Granovetter, 1985). The aim is to identify commonalities and draw these two traditions closer together, thereby building on the reviews of Ritter (2006) and Bushway and Reuter (2008) on the disciplinary issues separating economic and criminological research on drug markets. I use criminology with reference to the sociological and anthropological traditions but recognize that more interdisciplinary conceptions also include disciplines like economics in the study of crime and control. In the following section, I go into more detail on the problems with valuation, competition, and cooperation (Beckert & Wehinger, 2013) as seen from the transaction costs economic framework. Next, I elaborate by including economic sociological research on similar issues in legal markets and discuss how they pertain to the criminological research on illicit drug markets.

Transaction Cost Economics Perspective on Illicit Drug Distribution

The point of departure for understanding the economic perspective is neoclassic economics. Here, illicit drugs are seen as a good like any other. Illegal transactions are not some special category of deviance, but, rather, a reaction to prices and incentives under competition (Becker & Murphy, 1988; Lahaie, Janssen, & Cadet-Taı¨rou, 2015; Mocan & Corman, 1998). Neoclassic economic research is often criticized for working with unrealistic assumptions of perfect information, isolated transactions, and anonymous participants that acquire goods only based on prices (Swedberg, 2003). However, at least since Becker’s (1974) form of behavioral economics, these assumptions have been challenged within economics. Newer strands of theory work with the assumption of imperfect markets, where price is not the only parameter of interest.

The baseline theory for analyzing drug markets, risks and prices,2 is based on Williamson’s (1973) transaction cost economics. This analysis includes problems with information asymmetry, law, limited rationality, and organizational structure. Transaction cost economics posits two important qualifications to the neoclassic assumptions: bounded rationality and opportunism (Williamson, 1981). Bounded rationality emphasizes the limitations in making decisions under conditions of complexity and uncertainty, and opportunism refers to participants who provide false or misleading information, break agreements, and so forth (Beckert, 1996; Krippner, 2001). This broader conception of economics as the allocation of scarce resources (Bushway & Reuter, 2008) brings the analysis closer to sociology and anthropology (McCarthy, 2002; Swedberg, 2003).

Departing from these qualifications to the economic perspective, the following sections present research that examines the high and variable prices for illicit drugs, how distributors improve efficiency, and how they prevent opportunism by investing in their reputations.

Valuation: High levels and extreme variability.

From the risks and prices perspective, law enforcement works as a “tax” on illicit drug distribution, and this explains why prohibited drugs are so expensive. Illegality entails pervasive uncertainty about everything from the quality of the product and trading partners to the lack of advertisement, high search costs, and frequent arrests of market participants (Jacques & Allen, 2015). Every aspect of the distribution process is cumbersome because participants have to be compensated for the risks they run (Reuter & Kleiman, 1986). Research in this tradition has presented counterintuitive findings on illicit drug prices that contradict predictions from the neoclassic standard model (Caulkins & Reuter, 1998, 2006). An important example is that drug prices have fallen in times, where enforcement intensity has increased (Caulkins & Reuter, 2010; Grossman, Chaloupka, & Anderson, 1998; Reuter & Pollack, 2012). Somehow, drug producers and distributors have managed to circumvent the risks and lowered prices.

Not only are illicit drugs expensive, but the price is also extremely variable between different regions and distribution layers (Caulkins & Baker, 2010; Caulkins & Reuter, 2004). This variability is so high that it goes against the idea that price determines product allocation, but there is little research that examines supply-side pricing decisions. The existing research has mostly explored markups between distribution layers, associated costs, and profit sharing (Moeller, 2012; Pacula et al., 2010; Pearson & Hobbs, 2003). More research has investigated the demand side of prices using quantitative indicators from surveys and interviews. This research has examined dispersion of prices paid, the costs associated with acquiring drugs, and the heterogeneity of product quality (Burns, Caulkins, Everingham, & Kilmer, 2013; Davenport & Caulkins, 2016; Legleye, Lakhdar, & Spilka, 2008; Pacula et al., 2010; Pacula & Lundberg, 2014).

This variability in prices over time and place is primarily a function of the exogenous force of law enforcement. However, it is also affected by the strategic interaction between buyers and sellers (Caulkins & Baker, 2010; Caulkins & Reuter, 1998; Williamson, 1981). At the higher distribution levels, buyers and sellers cannot cheat each other as readily as buyers and sellers at the street level. This is because there are higher search costs associated with finding new partners at this level (Caulkins & Reuter, 2004, 2006; Goldstein, 1985). Not only are participants willing to forego opportunistic fraud, they may also provide repeat partners with lower prices. Caulkins, Johnson, Taylor, and Taylor (1999) found variations in earnings between four different categories of drug sellers defined by their relation to the distributor. The sellers who could pay for the drugs upfront retained the highest proportion of their sale revenue. These sellers were more reliable and rewarded with a better price. Subsequently, they were able to earn more money.

Participants in illicit drug distribution are not anonymous agents who allocate goods based on prices. Rather, they co-offend based on mutual assessments of their relationship and future business operations. This repeated interaction has consequences for how they structure their relationships and achieve efficiency and security.

Competition: Reducing costs of distribution.

In transaction cost economics, it is assumed the most efficient way of organizing the distribution process will prevail over others (Williamson, 1991). This introduces the question of social structure to the analysis. Williamson (1973) originally conceptualized the available (ideal type) structures as markets, hierarchies (commonly understood as firms), and, later, forms between market and hierarchy. The important qualifier for utilizing these concepts is that under illegality, the structural efficiency of distribution necessarily encompasses protection from law enforcement (Beckert & Wehinger, 2013).

Research has consistently found that illicit drugs are not sold in ideal-type “markets” because participants cannot “adopt impersonal forms or intentional communication and distribution of goods” (Arlacchi, 1998, p. 208). Illegal products are not allocated purely based on price. This is largely a function of asymmetric information. Only one of the partners in the transaction knows the purity of the drugs, and neither participant knows how trustworthy the other person is. This lack of reliable information, combined with the absence of contracts and access to legal recourse, implies that an open drug market would collapse from opportunism and retaliation.

The notion of the hierarchically organized distribution system with a kingpin has also been criticized (Murji, 2007; Natarajan, 2006; Reuter, 1983). With the historical exception of the Sicilian Mafia (Gambetta, 1996), hierarchies are too vulnerable to law enforcement interventions to last. Neither markets nor hierarchies provide enough security, and many researchers working with illicit drug distribution use a network metaphor to describe the economic structure between markets and hierarchies (Bichler et al., 2017).

Cooperation: Investing in reputation and goodwill.

Economics generally has more to say about valuation and competition than about cooperation, but Williamson (1993) recognized that governance around the transactional process mitigates conflict and realizes mutual gain. Reuter (1983, p. 123) similarly noted that strategic interaction in social relations is a way to cultivate goodwill and reputation. A reputation for reliability reduces the uncertainty that otherwise accompanies the lack of information on the quality of the product.

In other words, the reason that illicit drug distribution does not collapse from constant opportunistic cheating is that participants understand that the transaction is part of a repeated game of trust and honor (Reuter & Caulkins, 2004). In contrast to the anonymous and isolated transactions assumed in neoclassic economics, a repeated game involves a more farsighted understanding of the economic relation. Both participants recognize that they may gain from acting cooperatively (Williamson, 1993). The value of these personal relations increases higher up in the distribution layers, where the search costs associated with finding a new partner are higher (Reuter & Caulkins, 2004). Sellers encourage future transactions by being reliable and supplying drugs at prices that reflect their quality.

However, acquiring and signaling information on trustworthiness comes at a cost of time and money, and economists understand cooperation in investment terms. Social interaction with cooffenders entails added costs. Caulkins et al. (1999) noted that buyers and sellers who used credit and deferred repayment have to meet twice to exchange money and drugs. The consequence of these investments in repeat transactions with known partners is that transactions become person-specific, time-consuming, and idiosyncratic (Thompson, 2003; Williamson, 1991).

Trusted partners are especially important in illegal transactions because more aspects are regulated informally (Carruthers, 2005; Von Lampe & Johansen, 2004). Trust is a broad term that encompasses different understandings, where the game theoretical conceptualization from economics demarcates the most instrumental end of a continuum (Swedberg, 2003). Granovetter (1985) criticized the instrumental understanding of trust for being “undersocialized,” a ratio for cheating to not doing so. However, he also criticized the other end of the conceptual continuum for being “oversocialized,” where decisions are guided only by social norms, with no individual choice. Between these extremes, a middle ground acknowledges an instrumental understanding but includes aims of sociability, approval, status, and power. Not all economists see these types of goals as rational, but some sociologically oriented criminologists perceive them as important benefits of crime (McCarthy, 2002). Including broader categories of goals in the analysis of economic phenomena may help reconcile the criminological research from the street level with more abstract economic reasoning.

This question of interpersonal trust and interaction is arguably the central element that separates transaction cost economics and economic sociology. In brief, the economic sociological research extends transaction cost reasoning by putting more emphasis on the analysis of trust, interpersonal relations, and social networks.

Economic Sociology and Criminological Studies of Illicit Drug Distribution

The principal economic sociological approach derives from Granovetter’s (1985) programmatic statement that economic transactions are embedded in networks of social relations. Socially embedded transactions are used to transfer private information, which in turn can build trust, reduce costs, and increase efficiency (Nooteboom, 1996; Thompson, 2003; Uzzi & Lancaster, 2003). This logic continues where the economic understanding of investment in reputation stops. Under illegality, there are many opportunities to abscond with money and drugs, as there is little legal recourse (Jacques & Wright, 2013). Under these circumstances, embedded relations are especially difficult to establish and maintain. The required investments are not only economic in nature. Building trust requires a broader analysis that examines how this occurs.

In economic sociology, actors are seen as instrumentally rational but restricted by the structure of an economic system and the lack of information (Biggart & Beamish, 2003; McCarthy, 2002). Beckert (2009) recommended adopting a “pragmatic rationality” that recognized that uncertainties do not allow actors to deduce actions from preferences (see also Beckert, 1996, pp. 814–815; Carruthers, 2013). The lack of information implies that offenders do not necessarily attempt to maximize their gain in individual drug transactions.

Little research has examined illegal drug markets in light of economic sociology (but see Moeller & Sandberg, 2015, 2017; Murji, 2007; Sandberg, 2012), though there is no reason to believe that illegality is a barrier to adopting this approach. Parallel to the economic research on drug markets, the sociological and anthropological veins of criminological research have examined questions on how different categories of partners affect valuation, how marketplaces are competitively organized, and the various strategies used for creating cooperation. In the following sections, I will present the research on legal markets and the criminological research on illicit drug distribution that add to the economic understanding.

Valuation: Deviating from the competitive equilibrium.

Granovetter’s (1985) article also contained a critique of transaction cost reasoning for underappreciating the importance of interpersonal relations in determining prices. He proposed that prices vary according to the relationships between buyer and seller, the costs of shifting to different partners, and the market situation. Supply, demand, and distribution costs affect economic outcomes, including prices (Beckert, 2009; Carruthers, 2013). By putting more emphasis on the social relationships, social embeddedness theory provides an explanation of why prices deviate from the competitive equilibrium (Beckert, 2009; Krippner, 2001).

Some of this variation in price can be observed in street-level drug markets. Retail-level sellers defraud buyers who are incapable of retaliating, addicts, and strangers who they do not expect to become repeat buyers (Jacques et al., 2014). This is consistent with the transaction cost perspective, where opportunism is a way of maximizing for the seller. These street-level transactions are isolated as the seller does not need to build a relationship with the buyer and can resort to fraud. In addition, the earnings are low (MacCoun & Reuter, 1992; McCarthy & Hagan, 2001), except for a few individuals who manage to rise to the top in the “tournament” structure of drug distribution (Levitt & Venkatesh, 2000). This has led criminologists to question if monetary gain can realistically be viewed as the primary incentive compared to the importance of social status and cultural norms (Hayward, 2007; Katz, 1988).3

Another central finding in the criminological research is participants do not display profit maximizing behavior but often exchange drugs at minimal profit or even as gifts between peers and friends (Coomber & Maher, 2006; Dwyer & Moore, 2010; May & Hough, 2004; Werse & Bernard, 2016). These friends have expectations of repeated dealings and wish to ensure a reliable supply, yet also claim to value the social relation in itself, even though it revolves around the drug. While they are foregoing opportunities for maximizing profits in the individual transaction, their actions are still rational in a broad sense where social status and friendship are considered goals (McCarthy, 2002). Retail transactions with known peers have been found to be priced higher than transactions from an anonymous seller (Wilkins, Reilly, & Casswell, 2005). A simple way to explain this variation is to note that social supply is lower on marketness (Block, 1990) than the street-level transactions.

Concerns other than competitive pricing factor into transactions. At the higher distribution levels, the investment perspective weighs more heavily than purely social goals. Here, the costs of shifting to a new partner increase and the value of the relationship between buyer and seller, therefore, vary with the distribution levels. Two types of findings from the criminological research illustrate this logic. Consistent with the investment perspective from transaction costs, it has been found that sellers at higher distribution levels may offer lower prices in order to build interpersonal trust (Desroches, 2007; Granovetter, 2005; Moeller & Sandberg, 2015). This is less a function of the distribution level than of the distribution form. The street-level transactions in Jacques, Allen, and Wright (2014) are conducted in a relatively open street market, where Coomber and Mahers’s (2006; Wilkins et al., 2005) respondents are part of a more closed social network. Social networks insulate against law enforcement as compared to the open-air street-level market.

Competition: Avoiding law enforcement intervention.

The criminological studies that examine the economic structure of illicit drug distribution are focused on typologies of different marketplaces, demonstrating there is not one drug market but rather clusters of market types (Desroches, 2007; Natarajan & Belanger, 1998). Individual marketplaces are dynamic and function differently from each other contingent on the types of drug, national drug control policies, and enforcement intensity (Adler, 1985; Dorn, Murji, & South, 1992). This is largely a function of deterrence. If sellers were not worried about law enforcement, they would sell drugs in public in an open market where they were most accessible to buyers. In contrast to this, most transactions occur indoors and in social networks with known transaction partners (Eck, 1995; Pacula et al., 2010).

In economic sociology, networks are described as an intermediate form between markets and hierarchies generated as a response to uncertainty and functioning as a mode of coordination as well as a mode of governance (Thorelli, 1986; Uzzi, 1997). Even if network transactions, from an economic perspective, tend to be idiosyncratic and person-specific, the interpersonal trust and adaptability give them an advantage in the illegal context because they are higher on security. Criminological theories depart from similar assumptions about the importance of social interaction for understanding deviance, for example, social learning (Akers, 1990), opportunity perspectives (Hochstetler, 2001), and control theories (Hirschi, 1969).

Some criminological research explicitly addresses the different types of economic governance structures and their implications for the efficiency and security of the illicit drug trade (Murji, 2007). Eck (1995) argued that retail-level drug sales can only take two forms: social networks or routine activity marketplaces. These ideal types are differentiated by an open/closed axis, where markets are more open and accessible than networks. The research that examines drug distribution as networks is focused on the implications of network coordination and structure on co-offending (Benson & Decker, 2010; Malm & Bichler, 2011; Ouellet, Bouchard, & Malm, 2016). This research finds that drug trafficking mostly consists of loosely linked entrepreneurs and small organizations based on family kinship (Desroches, 2007), not vertically structured criminal groups (Natarajan, 2006; Natarajan, Zanella, & Yu, 2015). Decker and Chapman (2008) found that the lack of formal structure, combined with the importance of culture, is an advantage for drug distributors seeking protection against law enforcement. Participants will sometimes attempt to maximize rationality and efficiency, while at other times, they will sacrifice efficiency for the security of the network (Benson & Decker, 2010; Bouchard, 2007).

Network analyses can help make sense of markets from a sociological perspective (Fligstein & Dioun, 2015). Central concepts in social network analysis are density and centrality (Morselli, 2001) as well as identifying subgroups (Natarajan, 2006), weak ties, and structural holes (McGloin & Kirk, 2016). Morselli and Tremblay (2004) found that offenders in less redundant networks had higher criminal earnings than their counterparts in more redundant criminal networks. Middlemen can also reduce uncertainty when they are trusted by both sides (Gambetta, 1996; Morselli, 2001; Zaitch, 2002). Malm and Bichler (2011) conceptualized the drug market commodity chain as a series of nodes that represent transactions. Each node adds value to the process, and their analysis was able to identify niches with unique characteristics within the overall structure of the distribution network.

This is an area where traditional criminological research and economic sociology can be combined. Gibbs’s (1975) theory of restrictive deterrence (Jacobs, 1996; Moeller, Copes, & Hochstetler, 2016) offers a theoretical framework that explains the strategic, temporal, and geographic adaptations drug sellers make in response to law enforcement. Moving illicit transactions indoors and only dealing with known partners are good examples of how to reduce sanction risks while continuing offending. Another example of these adaptations is found in the advent of cryptomarkets. In recent years, a growing share of illicit drug transactions has moved to cryptomarkets, where communication and payment are anonymized (Moeller, Munksgaard, & Demant, 2017).

Other aspects of deterrence theory can also inform the analysis. Jacques and Allen (2014) argued that law enforcement is not the only form of deterrence that affects drug distribution. With reference to Bentham’s sanction typology, they argued that the threat of arrest is a “political” deterrent, but noted that drug sellers also cope with “physical, moral, religious, and sympathetic” forms of deterrence stemming from other drug market participants. This expanded understanding of what constitutes deterrence can contribute to the economic sociological perspective on network governance under illegality. Presently, research in the network-oriented tradition is focused on the structure of the network. Little research has examined the content of network ties and economic relations governance (Beckert & Wehinger, 2013; Thompson, 2003). How are the interpersonal relations managed regarding efficiency and security? These types of questions have been examined in recent research on illicit drug distribution.

Cooperation: Managing interpersonal relations.

Using Nooteboom’s (1996) concepts on governance from economic sociology, Moeller and Sandberg (2017) argued that drug distributors manage the efficiency and security of their social network with two generic strategies: adversarial and cooperative. Adversarial governance is achieved through social control, coercion, fear of sanctions, and retaliation (Jacques et al., 2014). The threat of retaliation, or the “visible hand” of illegal markets (Reuter, 1983), prevents opportunistic predation. The risk of being retaliated against is a principal cost component in the price of illicit drugs (Reuter & Kleiman, 1986). Violent retribution obtains justice without the aid of police and courts (Jacques et al., 2014), and criminological research has also found that drug dealers use a reputation for violence preventively. They are seen as costlier targets for other dealers and are therefore able to reduce their chance of being victimized; however, this only holds for the street-level and active dealers (Berg & Loeber, 2015).

Using deterrence as a means of governance has disadvantages as well. Several studies have found that violence is only used reluctantly (Coomber & Maher, 2006; Desroches, 2007; Zaitch, 2005) because it attracts attention from law enforcement and creates enemies (Benson & Decker, 2010). Arrests and incarcerations of drug dealers alter the power balance between criminal groups and lead to increased violence in the struggle for market shares (Kleiman, 1989; Ousey & Lee, 2004; Rasmussen & Benson, 1994). Papachristos (2009) used network analysis and autocorrelation to demonstrate how this results in a spiral of retaliatory violence.

Economic sociological network research has analyzed legal businesses and found that cooperative governance promotes trust and creates compliance, loyalty, and even heuristic decision-making (Granovetter, 2005). Trust is what makes a network economically feasible (Beckert & Wehiger, 2013; Biggart & Beamish, 2003; Uzzi, 1997). Transactions embedded in social networks do not foreordain cooperative outcomes but provide a mechanism for transferring private information that is not publicly available and can be used to make more qualified decisions and increase informal monitoring (Carruthers, 2013; Uzzi & Lancaster, 2003).

Similar notions have been iterated in the criminological research on drug distribution networks (Moeller & Sandberg, 2015; Murji, 2007; Ouellet et al., 2016; Von Lampe & Johansen, 2004). There is also a large literature that demonstrates the importance of friendship (Belackova & Vaccaro, 2013; Bernd & Werse, 2016) and ethnicity as structuring features of co-offending (Murji, 2007; Tenti & Moreslli, 2014; Zaitch, 2002). Rational drug sellers with a longer term perspective can have added security, save on costs, and spend their time and energy on selling by acting cooperatively (Jacques & Wright, 2008). Moeller and Sandberg (2017) proposed a similar sentiment in their study of debt management between drug sellers. They found various strategies such as extending repayment or reducing the debt were used in an attempt to maintain good relations, avoid snitching and violence, and promote future business, despite the short-term economic losses they sometimes entailed. The notion of cooperative governance in illicit drug distribution supplements the research based on social network analysis that is focused on structure.


In this article, I demonstrate that the social embeddedness approach ties together drug market research by economists and criminologists. Economic sociology provides a broader understanding of markets than economics that is easier to reconcile with findings from criminological research. Its network perspective bridges the under- and oversocialized conception of actors in economics and sociology (Biggart & Beamish, 2003; Granovetter, 1985; Swedberg, 1990; Williamson, 1981) and forms a link between criminology and research based on transaction costs economics. Specific examples of uncompetitive prices and cooperative behavior demonstrate how findings from legal networks can pertain to illicit drug distribution. More broadly, the economic sociological perspective may provide a way to move criminology beyond the debate about what dominates the decision to offend—emotions or resources (Katz, 1988; McCarthy, 2002). Understanding economic transactions as socially embedded in networks does not entail the absence of market sensibility. The social embeddedness approach recognizes that price matters and that self-interest may be at work even amid vigorous, meaningful social ties (Beckert, 2009; Granovetter, 1985).

Criminological research has demonstrated how opportunism and cooperativeness vary with distribution levels and how different strategies can be used to govern interpersonal relations and manage reputations. Sellers at the retail level rationally cheat buyers who have no means of retaliating (Jacques et al., 2014), while higher level distributors have more interest in maintaining good relations and making repeat dealings with the same person (Moeller & Sandberg, 2015). This is similar to the notion of different levels of marketness (Block, 1990)—the relative importance of price considerations. Low marketness does not mean that price is irrelevant, but it competes with other variables such as social status and culture. Furthermore, Block (1990) noted that marketness fluctuates with social embeddedness and actors’ instrumentalism. Instrumentalism captures the nature of individual motivation. High instrumentalism occurs when actors prioritize economic goals and engage in opportunistic behavior (Moeller et al., 2016).

In contrast, low instrumentalism reflects prioritization of noneconomic goals like friendship, ethnic ties, and morality. The criminological research has questioned the instrumental rationality of drug transactions, particularly those involving cannabis and at the retail level. It has been argued that the widespread use of gifts in retail cannabis distribution makes it distinct (Coomber & Maher, 2006). To include these transactions in a criminological drug market, understanding requires viewing social goals of friendship and status as rational pursuits. My argument is that these transactions are reconcilable with a social embeddedness approach. Retail cannabis distribution in social networks is lower on marketness but can still be understood as a rational adaptation to avoid law enforcement. Friendship can be a goal unto itself, but the research demonstrates that it is a term that is used to describe people who only know each other through the drug distribution. These friends are kept close also for the instrumental reason of securing a stable supply of reliable product (Belackova & Vaccaro, 2013). As such, it is not in contrast with Jacques et al.’s (2014) finding that retail street dealers cheat strangers.

In some criminological research, the analysis of resource exchanges is focused on the particular social and cultural components that affect transactions beyond costs and benefits (Beckert, 2009; Sandberg, 2012). The social embeddedness approach sees this as two conjoining aspects of transactions. Sellers can have goals of friendship and subcultural status that can be understood as rational in a sociological sense and economic sense when seen as maintenance of network ties. This is reconcilable with the game theoretical investment perspective, albeit with a heavier analytical emphasis on the social processes. Bushway and Reuter (2008) argued that the distance is not necessarily as great as it may seem. Economics has come a long way in recognizing and dealing with heterogeneity in general. For illicit drug markets, specifically, there is also a recognition that other disciplines can contribute to the analysis. Knowing that social factors and network structure affect the economic aspects of the illicit drug markets is a start, but research is still required to demonstrate what effects occur and how. Using the social embeddedness approach for drug market analyses also has the advantage of expanding the relevance of criminological research to other social science realms.


1. Economics and sociology are sometimes distinguished in terms of their respective action theories, with nonrationality being relegated to sociology (Swedberg, 2003; Williamson, 1993). Strands of criminology have been reluctant to embrace rational choice approaches due to a belief that the assumption is inconsistent with the empirical reality of crime (McCarthy, 2002) or maybe confusion about what it entails (Akers, 1990). Bushway and Reuter (2008) noted that the economic conception of rationality does not refer to the character of the offender’s “objective function,” that is, the aim of the actions, but only to the steps taken in their attempt to achieve it (see also Becker & Murphy, 1988).

2. “Risk” has two meanings: the “expected value of incurred enforcement” and “uncertainty”; “price” is used as “a surrogate, chosen for its notional simplicity of measurement” (Reuter & Kleiman, 1986, pp. 302, 298).

3. There may also be an element of disciplinary competition at work. Academic disciplines are actively in competition over research areas and problem definitions (Swedberg, 1990). Bushway and Reuter (2008; see also Rasmussen, Benson, & Mocan, 1998) noted that economists are interested in drug markets and criminological subjects but that this appreciation is not returned. This skepticism may be a remnant of the hostility that followed the “pomposity” of Becker’s (1974) claims that neoclassic analysis could substitute the “ad hoc concepts” from sociology and criminology (McCarthy, 2002, p. 417). Many sociologists perceived this as a form of academic imperialism (Swedberg, 1990) and derided the economic contributions as having “extremely limited value” for policy purposes (Gottfredson & Hirschi, 1990, p. 73).


Adler, P. (1985). An ethnography of drug dealing and smuggling communities. New York, NY: Columbia University Press.

Akers, R. (1990). Rational choice, deterrence, and social learning theory in criminology: The path not taken. Journal of Criminal Law and Criminology, 81, 653–676.

Arlacchi, P. (1998). Some observations on illegal markets. In R. Vincenzo, S. Nigel, & I. R. Taylor (Eds.), The new European criminology: Crime and social order in Europe (pp. 203–215). Abingdon, England: Routledge.

Becker, G. S. (1974). Crime and punishment: An economic approach. In G. Becker &W. Landes (Eds.), Essays in the economics of crime and punishment (pp. 1–54). New York, NY: Columbia University Press.

Becker, G. S., & Murphy, K. M. (1988). A theory of rational addiction. Journal of Political Economy, 96, 675–700.

Beckert, J. (1996). What is sociological about economic sociology? Uncertainty and the embeddedness of economic action. Theory and Society, 25, 803–840.

Beckert, J. (2009). The social order of markets. Theory and Society, 38, 245–269.

Beckert, J., & Wehinger, F. (2013). In the shadow: Illegal markets and economic sociology. Socio-Economic Review, 11, 5–30.

Belackova, V., & Vaccaro, C. A. (2013). ‘A friend with weed is a friend indeed’: Understanding the relationship between friendship identity and market relations among marijuana users. Journal of Drug Issues, 43, 289–313.

Benson, J. S., & Decker, S. H. (2010). The organizational structure of international drug smuggling. Journal of Criminal Justice, 38, 130–138.

Berg, M. T., & Loeber, R. (2015). Violent conduct and victimization risk in the urban illicit drug economy: A prospective examination. Justice Quarterly, 32, 32–55.

Bichler, G., Malm, A., & Cooper, T. (2017). Drug supply networks: A systematic review of the organizational structure of illicit drug trade. Crime Science, 6, 1–23.

Biggart, N. W., & Beamish, T. D. (2003). The economic sociology of conventions: Habit, custom, practice, and routine in market order. Annual Review of Sociology, 29, 443–464.

Block, F. L. (1990). Postindustrial possibilities: A critique of economic discourse. Oakland: University of California Press.

Bouchard, M. (2007). On the resilience of illegal drug markets. Global Crime, 8, 325–344.

Burns, R. M., Caulkins, J. P., Everingham, S. S., & Kilmer, B. (2013). Statistics on cannabis users skew perceptions of cannabis use. Frontiers in Psychiatry, 4, 1–10.

Bushway, S., & Reuter, P. (2008). Economists’ contribution to the study of crime and the criminal justice system. Crime and Justice, 37, 389–451.

Carey, J. T. (1968). The college drug scene. Upper Saddle River, NJ: Prentice Hall.

Carruthers, B. G. (2005). The sociology of money and credit. In N. J. Smelser & R. Swedberg (Eds.), The handbook of economic sociology (2nd ed., pp. 355–378). Princeton, NJ: Princeton University Press.

Carruthers, B. G. (2013). From uncertainty towards risk: The case of credit rating. Socio-Economic Review, 11, 525–551.

Caulkins, J. P., & Baker, D. (2010). Cobweb dynamics and price dispersion in illicit drug markets. Socio-Economic Planning Sciences, 44, 220–230.

Caulkins, J. P., Johnson, B., Taylor, A., & Taylor, L. (1999). What drug dealers tell us about their costs of doing business. Journal of Drug Issues, 29, 323–340.

Caulkins, J. P., & Reuter, P. (1998). What price data tell us about drug markets. Journal of Drug Issues, 28, 593–612.

Caulkins, J. P., & Reuter, P. (2006). Illicit drug markets and economic irregularities. Socio-Economic Planning Sciences, 40, 1–14.

Caulkins, J. P., & Reuter, P. (2010). How drug enforcement affects drug prices. Crime and Justice, 39, 213–271.

Coomber, R., & Maher, L. (2006). Street-level drug market activity in Sydney’s primary heroin markets: Organization, adulteration practices, pricing, marketing and violence. Journal of Drug Issues, 36, 719–753.

Cornish, D. B., & Clarke, R. V. (2002). Analyzing organized crime. In A. R. Piquero & S. G. Tibbetts (Eds.), Rational choice and criminal behavior: Recent research and future challenges (pp. 41–63). New York, NY: Routledge.

Davenport, S. S., & Caulkins, J. P. (2016). Evolution of the United States marijuana market in the decade of liberalization before full legalization. Journal of Drug Issues, 46, 411–427.

Decker, S. H., & Chapman, M. T. (2008). Drug smugglers on drug smuggling. Philadelphia, PA: Temple University Press.

Desroches, F. (2007). Research on upper level drug trafficking: A review. Journal of Drug Issues, 37, 827–844.

Dorn, N., Levi, M., & King, L. (2005). Literature review on upper level drug trafficking. London, England: Home Office Research Development and Statistics Directorate.

Dorn, N., Murji, K., & South, N. (1992). Traffickers: Drug markets and law enforcement. Hove, England: Psychology Press.

Dwyer, R., & Moore, D. (2010). Beyond neoclassical economics: Social process, agency and the maintenance of order in an Australian illicit drug marketplace. International Journal of Drug Policy, 21, 390–398.

Eck, J. E. (1995). A general model of the geography of illicit retail marketplaces. In J. E. Eck & D. Weisburd (Eds.), Crime and place (pp. 67–93). New York, NY: Criminal Justice Press.

Fligstein, N., & Dioun, C. (2015). Economic sociology. In J. D. Wright (Ed.), International encyclopedia of the social & behavioral sciences (pp. 67–72). Amsterdam: Elsevier.

Gambetta, D. (1996). The Sicilian Mafia: The business of private protection. Cambridge, MA: Harvard University Press.

Gibbs, J. P. (1975). Crime, punishment, and deterrence. New York, NY: Elsevier.

Goldstein, P. J. (1985). The drugs/violence nexus: A tripartite conceptual framework. Journal of Drug Issues, 15, 493–506.

Gottfredson, M. R., & Hirschi, T. (1990). A general theory of crime. Stanford, CA: Stanford University Press.

Granovetter, M. (1985). Economic action and social structure: The problem of embeddedness. American Journal of Sociology, 91, 481–510.

Granovetter, M. (2005). The impact of social structure on economic outcomes. The Journal of Economic Perspectives, 19, 33–50.

Grossman, M., Chaloupka, F. J., & Anderson, R. (1998). A survey of economic models of addictive behavior. Journal of Drug Issues, 28, 631–643.

Hayward, K. (2007). Situational crime prevention and its discontents: Rational choice theory versus the ‘culture of now.’ Social Policy & Administration, 41, 232–250.

Hirschi, T. (1969). Causes of delinquency. Berkeley: University of California Press.

Hochstetler, A. (2001). Opportunities and decisions: Interactional dynamics in robbery and burglary groups. Criminology, 39, 737–764.

Jacobs, B. A. (1996). Crack dealers and restrictive deterrence: Identifying narcs. Criminology, 34, 409–431.

Jacques, S., & Allen, A. (2014). Bentham’s sanction typology and restrictive deterrence: A study of young, suburban, middle-class drug dealers. Journal of Drug Issues, 44, 212–230.

Jacques, S., & Allen, A. (2015). Drug market violence: Virtual anarchy, police pressure, predation, and retaliation. Criminal Justice Review, 40, 87–99.

Jacques, S., & Wright, R. (2008). The relevance of peace to studies of drug market violence. Criminology, 46, 221–254.

Jacques, S., & Wright, R. (2013). How victimized drug traders mobilize police. Journal of Contemporary Ethnography, 42, 545–575.

Jacques, S., Wright, R., & Allen, A. (2014). Drug dealers, retaliation, and deterrence. International Journal of Drug Policy, 25, 656–662.

Katz, J. (1988). Seductions of crime: Moral and sensual attractions in doing evil. New York, NY: Basic Books.

Kleiman, M. (1989). Marijuana: Costs of abuse, costs of control. New York, NY: Greenwood Press.

Krippner, G. R. (2001). The elusive market: Embeddedness and the paradigm of economic sociology. Theory and Society, 30, 775–810.

Lahaie, E., Janssen, E., & Cadet-Taı¨rou, A. (2015). Determinants of heroin retail prices in metropolitan France: Discounts, purity and local markets. Drug and Alcohol Review, 35, 597–604.

Legleye, S., Ben Lakhdar, C., & Spilka, S. (2008). Two ways of estimating the euro value of the illicit market for cannabis in France. Drug and Alcohol Review, 27, 466–472.

Levitt, S. D., & Venkatesh, S. A. (2000). An economic analysis of a drug-selling gang’s finances. The Quarterly Journal of Economics, 115, 755–789.

May, T., & Hough, M. (2004). Drug markets and distribution systems. Addiction Research & Theory, 12, 549–563.

MacCoun, R., & Reuter, P. (1992). Are the wages of sin $30 an hour? Economic aspects of street level drug dealing. Crime & Delinquency, 38, 477–491.

Malm, A., & Bichler, G. (2011). Networks of collaborating criminals: Assessing the structural vulnerability of drug markets. Journal of Research in Crime and Delinquency, 48, 271–297.

McCarthy, B. (2002). New economics of sociological criminology. Annual Review of Sociology, 28, 417–442.

McCarthy, B., & Hagan, J. (2001). When crime pays: Capital, competence, and criminal success. Social Forces, 79, 1035–1060.

McGloin, J. M., & Kirk, D. S. (2016). Social network analysis. In A. R. Piquero & D. Weisburd (Eds.), Handbook of quantitative criminology (pp. 209–224). New York, NY: Springer.

Mieczkowski, T. (1988). Studying heroin retailers: A research note. Criminal Justice Review, 13, 39–44.

Miron, J. (2005). The budgetary implications of marijuana prohibition. Marijuana Policy Project, Department of Economics, Harvard University. Retrieved from

Mocan, H. N., & Corman, H. (1998). An economic analysis of drug use and crime. Journal of Drug Issues, 28, 613–629.

Moeller, K. (2012). Costs and revenues in street-level cannabis dealing. Trends in Organized Crime, 15, 31–46.

Moeller, K., Copes, H., & Hochstetler, A. (2016). Advancing restrictive deterrence: A qualitative meta-synthesis. Journal of Criminal Justice, 46, 82–93.

Moeller, K., Munksgaard, R., & Demant, J. (2017). Flow my FE the vendor said: Exploring violent and fraudulent resource exchanges on cryptomarkets for illicit drugs. American Behavioral Scientist, 61, 1–26.

Moeller, K., & Sandberg, S. (2015). Credit and trust: Management of network ties in illicit drug distribution. Journal of Research in Crime and Delinquency, 52, 691–716.

Moeller, K., & Sandberg, S. (2017). Debts and threats: Managing inability to repay credits in illicit drug distribution. Justice Quarterly, 34, 272–296.

Morselli, C. (2001). Structuring Mr. Nice: Entrepreneurial opportunities and brokerage positioning in the cannabis trade. Crime, Law and Social Change, 35, 203–244.

Morselli, C., & Tremblay, P. (2004). Criminal achievement, offender networks and the benefits of low selfcontrol. Criminology, 42, 773–804.

Murji, K. (2007). Hierarchies, markets and networks: Ethnicity/race and drug distribution. Journal of Drug Issues, 37, 781–804.

Natarajan, M. (2006). Understanding the structure of a large heroin distribution network: A quantitative analysis of qualitative data. Journal of Quantitative Criminology, 22, 171–192.

Natarajan, M., & Belanger, M. (1998). Varieties of drug trafficking organizations: A typology of cases prosecuted in New York City. Journal of Drug Issues, 28, 1005–1025.

Natarajan, M., Zanella, M., & Yu, C. (2015). Classifying the variety of drug trafficking organizations. Journal of Drug Issues, 45, 409–430.

Nooteboom, B. (1996). Trust, opportunism and governance: A process and control model. Organization Studies, 17, 985–1010.

Ouellet, M., Bouchard, M., & Malm, A. (2016). Social opportunity Structures and the escalation of drug market offending. Journal of Research in Crime and Delinquency, 53, 743–764.

Ousey, G. C., & Lee, M. R. (2004). Investigating the connections between race, illicit drug markets, and lethal violence, 1984-1997. Journal of Research in Crime and Delinquency, 41, 352–383.

Pacula, R. L., Kilmer, B., Grossman, M., & Chaloupka, F. J. (2010). Risks and prices: The role of user sanctions in marijuana markets. The BE Journal of Economic Analysis & Policy, 10, 1–38.

Pacula, R. L., & Lundberg, R. (2014). Why changes in price matter when thinking about marijuana policy: A review of the literature on the elasticity of demand. Public Health Reviews, 35, 1–18.

Papachristos, A. V. (2009). Murder by structure: Dominance relations and the social structure of gang homicide. American Journal of Sociology, 115, 74–128.

Pearson, G., & Hobbs, D. (2003). King pin? A case study of a middle market drug broker. The Howard Journal of Criminal Justice, 42, 335–347.

Preble, E., & Casey, J. J. (1969). Taking care of business: The heroin user’s life on the street. Substance Use & Misuse, 4, 1–24.

Rasmussen, D. W., & Benson, B. L. (1994). The economic anatomy of a drug war: Criminal justice in the commons. Lanham, MD: Rowman & Littlefield.

Rasmussen, D. W., Benson, B. L., & Mocan, H. N. (1998). The economics of substance abuse in context: Can economics be part of an integrated theory of drug use? Journal of Drug Issues, 28, 575–592.

Reuter, P. (1983). Disorganized crime: The economics of the visible hand. Cambridge, MA: MIT Press.

Reuter, P., & Caulkins, J. P. (2004). Illegal ‘lemons’: Price dispersion in cocaine and heroin markets. Bulletin on Narcotics, 56, 141–165.

Reuter, P., & Kleiman, M. (1986). Risks and prices: An economic analysis of drug enforcement. Crime and Justice, 7, 289–340.

Reuter, P., & Pollack, H. A. (2012). Good markets make bad neighbors. Criminology & Public Policy, 11, 211–220.

Ritter, A. (2006). Studying illicit drug markets: Disciplinary contributions. International Journal of Drug Policy, 17, 453–463.

Sandberg, S. (2012). The importance of culture for cannabis markets towards an economic sociology of illegal drug markets. British Journal of Criminology, 52, 1133–1151.

Swedberg, R. (1990). Economics and sociology: Redefining their boundaries: Conversations with economists and sociologists. Princeton, NJ: Princeton University Press.

Swedberg, R. (2003). Principles of economic sociology. Princeton, NJ: Princeton University Press.

Tenti, V., & Morselli, C. (2014). Group co-offending networks in Italy’s illegal drug trade. Crime, Law and Social Change, 62, 21–44.

Thompson, G. F. (2003). Between hierarchies and markets: The logic and limits of network organization. Oxford, England: Oxford University Press.

Thorelli, H. B. (1986). Networks: Between markets and hierarchies. Strategic Management Journal, 7, 37–51.

Uzzi, B. (1997). Social structure and competition in interfirm networks: The paradox of embeddedness. Administrative Science Quarterly, 42, 35–67.

Uzzi, B., & Lancaster, R. (2003). Relational embeddedness and learning: The case of bank loan managers and their clients. Management Science, 49, 383–399.

Von Lampe, K., & Johansen, P. O. (2004). Organized crime and trust: On the conceptualization and empirical relevance of trust in the context of criminal networks. Global Crime, 6, 159–184.

Weber, M. (1978). Economy and society: An outline of interpretive sociology. Berkeley: University of California Press. (Original work published 1922).

Werse, B., & Bernard, C. (Eds.). (2016). Friendly business—International views on social supply, self-supply and small-scale drug dealing. Wiesbaden, Germany: Springer.

Wilkins, C., Reilly, J., & Casswell, S. (2005). Cannabis ‘Tinny’ houses in New Zealand: Implications for the use and sale of cannabis and other illicit drugs in New Zealand. Addiction, 100, 971–980.

Williamson, O. E. (1973). Markets and hierarchies: Some elementary considerations. American Economic Review, 63, 316–325.

Williamson, O. E. (1981). The economics of organization: The transaction cost approach. American Journal of Sociology, 87, 548–577.

Williamson, O. E. (1991). Comparative economic organization: The analysis of discrete structural alternatives. Administrative Science Quarterly, 36, 269–296.

Williamson, O. E. (1993). Calculativeness, trust, and economic organization. The Journal of Law and Economics, 36, 453–486.

Zaitch, D. (2002). From Cali to Rotterdam: Perceptions of Colombian cocaine traffickers on the Dutch port. Crime, Law and Social Change, 38, 239–266.

Zaitch, D. (2005). The ambiguity of violence, secrecy, and trust among Colombian drug entrepreneurs. Journal of Drug Issues, 35, 201–228.


No comments here