Extralegal governance institutions refer to private or nonstate mechanisms, such as norms, rules, organizations, and behavioural equilibria, which are used to mitigate risks, promote cooperation, and deter opportunism (Dixit, 2004; Leeson, 2008). This section first examines the risks faced by participants in illegal markets and how these risks evolve when illegal transactions move online. It then discusses the governance institutions participants could use to mitigate these risks in both offline and online social settings.
Risk and uncertainty in illegal markets
Illegal markets emerge and flourish in the teeth of state prohibition. These markets supply in-demand goods or services that are unavailable in the legal marketplace (Schelling,
