Gulag-mart: Gray and Black Markets Within Modern Russian Penal System

Abstract: Russia’s FSIN (Federal Correctional Service) - direct successor of notorious GULAG - is one of the biggest prison systems in the world, with about 1000 penal institutions. While exchange of goods between inmates is prohibited, there is a flourishing market for goods and services with counterparties inside and outside penitentiaries. We tested hypothesis that (1) prices of goods and services can significantly deviate within closed system than at outside market, in both legal and semi-legal trading (2) lack of formal property rights significantly distorts behavior of economic agents and (3) opportunistic behavior of prison stuff shapes market structure and outcomes. All three were confirmed. Market for mobile phones was the most interesting. While mobile telephones are banned within prisons and their ownership is punished by stricter regime and withdrawal of privileges, they are highly valued. Unlike free world, model of the telephone does not impact price, which is 5-10 times higher than outside. Size (easiness to hide) and quality of cameras were material factors. Interestingly common ownership of telephones is rare – as it is both status symbol and due to lack of property rights. Payments within prisons are still done in cigarettes or loose tea, and price scale exists for most goods and services. However, mobile payments became common these days for deals with outsiders. Agents serve as intermediaries with relatively high fees that cover semi-legal nature of transactions.