For many things we make and consume, markets connect the provider to the consumer, and to libertarians, that’s just how things ought to be. More than most, we are even comparatively comfortable with extending the market process to unconventional and controversial goods and services.

But the cases when many people might balk at a market solution, markets don’t necessarily disappear. Instead, market exchanges are obfuscated: People engage in market-like behavior anyway, but they take steps to hide what they’re up to, and they talk about it in very different terms. Examples include payola, in which influence on an audience is purchased for cash; Islamic finance, in which interest payments are forbidden, but lenders’ risks are nonetheless compensated; and paying for bottle service in nightclubs - on the tacit understanding that those pricey bottles of vodka also secure the company of attractive young women.

In recent years sociologists have increasingly turned their attention to these phenomena, which are of obvious interest to those who support free markets and market-friendly public policies: What are the policy implications of obfuscated exchange? Where is it likely to arise? And how can the law properly treat the exchanges that we perhaps would rather not think of as exchanges at all?

Our lead essayist this month is Professor Gabriel Rossman of UCLA, whose lead essay offers a conceptual introduction to the field and offers suggestions on how cultures overcome taboos related to the market process. Joining him will be Professor Alan Page Fiske, also of UCLA, as well as Professor Michael C. Munger of Duke University and Professor Alex Tabarrok of George Mason University; each will write a formal response, and discussion will continue through the month. Comments on all essays will likewise remain open throughout the month, and we invite you to join in.

Lead Essay

  • In nearly all cases, markets are how most of us obtain and provide goods and services. But in some situations, recourse to markets is disfavored - whether rightly or wrongly - and in those cases, participants sometimes resort to what is known as an obfuscated exchange: Transactions may occur in which the good or service is provided, and in which the provider is compensated, but the whole thing still looks much less like a market transaction than it otherwise might. Examples are many, including everything from radio payola to Islamic finance. Professor Gabriel Rossman offers an introduction to this fascinating world and speculates on how cultures overcome their scruples about using markets.

Response Essays

  • Michael C. Munger notes that objections to exchange typically arise from the perception of unequal bargaining power; these perceptions commonly are the source of the need to obfuscate. And yet obfuscation increases transaction costs. Even in the case of government subsidies to industry, obfuscation plays exactly this role, for we would perhaps find direct cash transfers even more objectionable than indirect, regulatory subsidies, which are not so easily talked about as just a sop to a favored few. But this is hardly the only time when obfuscation happens, and Munger concludes by promising to examine in a later essay when hidden exchanges should and should not be recommended.

  • The examples that Gabriel Rossman analyzes are special cases of a general pattern, says Alan Page Fiske: What people say about social relationships commonly diverges from the actual nature of the relationship. This is not limited to obfuscation of market behavior; other things sometimes masquerade as commercial transactions instead, and various types of non-commercial interactions masquerade as one another. Further, individuals commonly act to preserve a beneficial ambiguity in their social relations, seeking to retain a pattern of options that would be foreclosed by a strict definition of the nature of their relationships. And at times, we may even be personally unaware of what our social minds are doing - and mischaracterize a relationship without realizing it.

  • Alex Tabarrok notes that for evolutionary reasons, humans tend to think in wealth-destroying ways about certain types of exchange. Obfuscation can help us work around the constraints of our lizard brains, saving lives in the process. Such happens in the obfuscated markets for organs in Iran and Israel. But obfuscation can do more than that: It can also allow participants to preserve certain kinds of social status that they might not want to forego. Obfuscation, then, is not mere dishonesty. It’s a way of negotiating social hierarchies while also participating in a market.

The Conversation

Related at Cato

Cato Unbound: Perverse Incentives: Sex Work and the Law,” December 2013

Cato Unbound: What Are the Limits to Markets?” November 2015

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