Debts and Threats: Managing Inability to Repay Credits in Illicit Drug Distribution

Abstract

This study examines how creditors in illicit drug markets manage debtors' inability to repay "fronted" drugs. Based on qualitative interviews with 40 incarcerated drug dealers in Norway, we explore four outcomes of unpaid drug debts. Two modes of governance dominated the credit reciprocation processes: Cooperative governance included strategies of accepting loss and refinancing debt and required mutual trust between creditor and debtor. Adversarial governance included extortion of debtors and revenge and was based on threats of violence. We found that creditors preferred refinancing debt or extorting debtors over accepting loss or using violence. We argue that the negotiated outcomes of drug debt have been neglected in research on drug markets, and explore how they require investment from the creditor, either in building trust or in deterring malfeasance through threats of violence. Using insights from economic sociology, the study highlights the importance of social control in illegal drug markets.

Coordination problems in cryptomarkets: Changes in cooperation, competition and valuation

“…Not only do illegal markets operate independently of a centralised-authority state, they also operate against the state -and this generates much uncertainty compared to legal transactions (Becker and Wehinger, 2012). In illegal markets, cooperation is based on networks, interpersonal trust, threats of violence and reputational concerns, which all require investments of various kinds (Moeller and Sandberg, 2016). Williamson (1979) describes this as enforcement costs, which are the expenses associated with securing the transaction.…”

“…Negative feedback can potentially ruin a business and force vendors to be service-minded and communicate in a friendly and open way with buyers. In conventional drug markets, drug sellers also gain a reputation for how they conduct their business and sellers with a good reputation attract more customers (Moeller and Sandberg, 2016).…”

Putting a price on drugs: An economic sociological study of price formation in illegal drug markets

“…Credit prices are higher than cash prices because of the costs involved in making and collecting loans (Reuter, ; Stiglitz & Weiss, ). As creditors have imperfect foresight on debtors' repayment ability, they need financial power to absorb losses from defaulting debtors and to accept uneven repayments without going bankrupt (Baumol, ; Moeller & Sandberg, ). Dealers in this study described credit as a central element of network power mechanisms.…”

“…Street capital (Sandberg, ) involves the practical rationality of street culture, including prescriptions on how to avoid the police and display readiness to use violence when disrespected. Most violence described by the interviewees was the result of unpaid debt (see also Moeller & Sandberg, ). A male mid‐level cannabis dealer (49) said:

A friend of mine got his finger cut off.

…”

“…This is problematic in drug distribution as potential debtors may be drug users who are unable to repay or maybe even unwilling to respect agreements, for example, if they have a high standing in street culture. The absence of formal institutions to protect creditors makes the process contingent on interpersonal trust or a reputation for willingness to use violence (Moeller & Sandberg, ). The economic sociological perspective on trust in interpersonal relationships aims at understanding them in terms of social networks.…”