|A 409, Dauphine|
Order Without Law
Illegal gambling markets are widespread across the world. How are contracts enforced in these markets? We present evidence that even in the absence of a state authority enforcing contracts, more than 70% fulfill their contractual obligations in this illicit market. We provide causal evidence that reputational sanctions significantly increase participation and enhance honoring of contractual obligations. Extensions of the payment deadline also increases contract enforcement. Overall, we provide data and experimental evidence that contract enforcement is possible without formal state enforcement. Illegal gambling appears to thrive on the same principles of reputation and credit constraints that sustain modern legal markets.