Crime
ON THE ECONOMICS OF ORGANIZED CRIME By Vimal Kumar and Stergios Skaperdas Department of Economics University of California, Irvine Irvine, CA 92697 Revised: February 13, 2008 Prepared for inclusion in: Garoupa, Nuno (ed.), Criminal Law and Economics
ABSTRACT: The core function of organized crime is the selling of protection. Protection can be real, against third-party crime, or manufactured by the organized crime groups themselves. Mafias and gangs emerge in areas of weak state control, because of prohibition and geographic, ethnic, or social isolation. Although competition is considered good in economics, in the case of organized crime the predatory competition that is more likely to take place is harmful. The costs of organized crime include the resources expended on the activity, more ordinary productive and investment distortions, as well as other dynamic effects on occupational choice. Keywords: Law and economics, property rights, governance JEL: K00, K42, L10, L22, O17
From highly sophisticated mafias to youth street gangs, organized crime is present in almost every country in the world. In addition to the better publicized Italian and American mafias 1 , examples include the Yakuza in Japan, the Triads in Hong Kong, Shanghai’s Green Gang, Colombian and Mexican drug cartels, numerous groupings in post-Soviet states, youth gangs in Los Angeles, New York, Soweto, or Sao Paulo, as well as many other less well-known – even some, given the nature of the business, unknowable – groups. Organized crime engages in much regular economic activity, the production and distribution of a wide variety of goods and services that are typically both legal and illegal – from construction and restaurant services to drugs, gambling, and prostitution. For that reason we might be tempted to think that mafias and gangs are just like any typical business firm and are therefore subject to the same economic analysis that ordinary firms are. However, the defining activity of an
ABSTRACT: The core function of organized crime is the selling of protection. Protection can be real, against third-party crime, or manufactured by the organized crime groups themselves. Mafias and gangs emerge in areas of weak state control, because of prohibition and geographic, ethnic, or social isolation. Although competition is considered good in economics, in the case of organized crime the predatory competition that is more likely to take place is harmful. The costs of organized crime include the resources expended on the activity, more ordinary productive and investment distortions, as well as other dynamic effects on occupational choice. Keywords: Law and economics, property rights, governance JEL: K00, K42, L10, L22, O17
From highly sophisticated mafias to youth street gangs, organized crime is present in almost every country in the world. In addition to the better publicized Italian and American mafias 1 , examples include the Yakuza in Japan, the Triads in Hong Kong, Shanghai’s Green Gang, Colombian and Mexican drug cartels, numerous groupings in post-Soviet states, youth gangs in Los Angeles, New York, Soweto, or Sao Paulo, as well as many other less well-known – even some, given the nature of the business, unknowable – groups. Organized crime engages in much regular economic activity, the production and distribution of a wide variety of goods and services that are typically both legal and illegal – from construction and restaurant services to drugs, gambling, and prostitution. For that reason we might be tempted to think that mafias and gangs are just like any typical business firm and are therefore subject to the same economic analysis that ordinary firms are. However, the defining activity of an
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