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Emiliano Alvarez, Juan Gabriel Brida, Gaston Cayssials and Erick Limas
 
''A dynamical explanation about price formation in illegal markets''
( 2022, Vol. 42 No.2 )
 
 
This paper introduces a dynamical extension to the static theoretical framework proposed by Slim (2009), where the author analyzes price formation in illegal markets. We develop a simple model with two regimes that can show a rich variety of dynamic behaviors, such as cyclical or even chaotic fluctuations without needing changes in exogenous variables. The analysis does not use random shocks to introduce irregular fluctuations, these arise because of the presence of intrinsic forces associated with nonlinear relations. This model can provide intuitions to explain price changes in illegal markets, particularly in drug ones, where price dynamics can become unpredictable given both the dangerous environment and the unequal degree of trust between the participants in these markets.
 
 
Keywords: price formation, illegal markets, nonlinear relations, chaos
JEL: C6 - Mathematical Methods and Programming: General
E3 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
 
Manuscript Received : Feb 04 2022 Manuscript Accepted : Jun 30 2022

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