[133609] in cryptography@c2.net mail archive
Re: street prices for digital goods?
daemon@ATHENA.MIT.EDU (David Molnar)
Sat Sep 20 14:07:41 2008
Date: Sat, 20 Sep 2008 04:11:15 -0700
From: David Molnar <dmolnar@eecs.berkeley.edu>
To: John Ioannidis <ji@tla.org>
CC: cryptography@metzdowd.com
In-Reply-To: <48C80431.80903@tla.org>
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John Ioannidis wrote:
> Hmmm... a how about a market-data feed for warez?
>=20
That would be useful for research. My colleague Karl Chen pointed out=20
that it would probably be more useful for the underground market.
For the case of drug street prices, the U.S. Drug Enforcement Agency=20
does keep a database of prices, called STRIDE, obtained from informant=20
and undercover agent buys of drugs. These are records from actual buys,=20
so they partially address the concern Richard Clayton raises about going =
by advertised list price -- but there are concerns (to which Richard=20
alludes) about whether agents systematically overpay or informants=20
systematically lie about the price they paid for drugs in order to=20
pocket the difference between money given to them for drug buys and the=20
actual price.
STRIDE also includes data on purity of drugs assayed in DEA labs. This=20
includes drugs seized by the feds, but not usually drugs seized by local =
agencies. There's actually a trio of papers here in particular that=20
might be of interest to people who want to look at possible parallels=20
between data gathering on drug street prices and illegal digital goods.
The first is an overview paper that discusses the conceptual and=20
practical problems in doing price and purity analyses over time for=20
illegal drugs. The paper also points out some interesting features of=20
the drug market. For example, the author points out that drugs are=20
"experience goods." That is, the purchaser does not know the actual=20
quality of the good until after making the purchase. For drugs, quality=20
means purity of the drug. What this boils down to is that when looking=20
at time series of drug street prices, it turns out you need to model=20
what the buyer believes the purity of the drug will be to make sense of=20
the data.
"Price and purity analysis for illicit drugs: Data and conceptual issues"=
J.P. Caulkins
Drug and Alcohol Dependence , Volume 90 , Pages S61 - S68
http://linkinghub.elsevier.com/retrieve/pii/S0376871606003061
(Unfortunately the article is behind a paywall.)
The second looks at the STRIDE data and argues it is not suitable for=20
use in economic analyses of the drug market. The primary criticism is=20
that the data are mainly gathered from buys intended to produce evidence =
for busts, except for a smaller program aimed solely at heroin. They are =
therefore not a uniform sample of any kind. More interesting to me,=20
however, is the author's contention that the data are not internally=20
consistent: he is able to separate out prices reported by the DEA from=20
prices reported by the DC metro police, then does a analysis showing=20
that the two agencies report a statistically significant difference in=20
prices. He concludes that the difference is greater than can be=20
accounted for by normal price differences within a single city and that=20
therefore something is wrong with the data.
"Should the DEA's STRIDE Data Be Used for Economic Analyses of Markets=20
for Illegal Drugs?"
Horowitz, Joel L
http://www.biz.uiowa.edu/econ/papers/uia/STRIDE_rev1a.pdf
The third and final paper is a rebuttal of the second. The authors claim =
that the second paper improperly lumps together retail and wholesale=20
purchases of illegal drugs. They also claim that the second paper does=20
not properly account for the relationship between price and purity of a=20
drug. Once they toss the appropriate magic indicator variables into=20
their regressions and stratify by purchase type, the supposed conflict=20
between DEA and DC police reported prices disappears.
Why the DEA STRIDE Data are Still Useful for Understanding Drug Markets
Jeremy Arkes, Rosalie Liccardo Pacula, Susan M. Paddock, Jonathan P.=20
Caulkins, Peter Reuter
NBER Working Paper No. 14224
Issued in August 2008
http://www.nber.org/papers/w14224
(Also paywalled, unfortunately)
What is the relevance to us? Well, I see a couple of points:
1) Like drugs, compromised PayPal accounts appear to be experience=20
goods. In the case of drugs, quality is purity. In the case of=20
compromised PayPal accounts, quality is something like the amount of=20
money that can be successfully moved out of the account. Therefore, I=20
would expect the same kind of modelling the buyer's "expected quality"=20
of the good would be useful for us. In particular, failing to take it=20
into account when analyzing price series could lead to the same kind of=20
internal inconsistencies noted by Horowitz.
Not clear to me where other illegal digital goods stand. Botnets for=20
example seem easy enough to test whether they are real. Also as Peter=20
Gutmann points out, escrow services are possible and exist with illegal=20
digital goods to aid fair exchange -- this is not reported for drugs.
2) Unlike STRIDE, the data sets we have reported so far were gathered=20
specifically for research in mind, and not as part of some other=20
mission. Unfortunately, they still are almost certainly not uniform=20
samples of illegal prices, and unlike STRIDE, as pointed out, they are=20
not actual transaction prices.
3) One of the complicating factors in drug data is the lack of=20
standardized units. For example, Caulkins notes that 16% of all meth=20
data reported in the STRIDE data was sold in units other than=20
grams...and a few early analyses of the data didn't notice, yielding=20
bogus results. A more serious issue is purity, again; the same $10 bag=20
of pot may have wildly different amounts of THC. Similarly, as others=20
have pointed out here, it is hard to do an apples to apples comparison=20
of "compromised online banking accounts" if the lots of compromised=20
accounts come in different sizes, from different banks, etc.
4) Finally, the sheer amount of money spent on drug enforcement and=20
market disruption is huge. The NBER paper cites $8.3 billion expended by =
the federal government for the purpose of disrupting illicit drug=20
markets, and $13 billion overall. How much do you think is spent, total, =
by everyone everywhere, on disrupting markets for illegal digital goods?
-David Molnar
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