Table Of ContentThe economics of organised crime
This is the first book to use economic theory in the analysis of all the different
aspects of organised crime: the origins, the internal organisation, market
behaviour and deterrence policies. The theory of rent-seeking is adopted to help
understand the origin of criminal organisations from a state of anarchy, while
modern industrial organisation theory is used to explain the design of internal
rules in the organised crime sector. The market behaviour of organised crime is
analysed taking into account its double nature of competitive firm and of
monopolist on rule-making. Finally, the 'crime and economics' approach is
applied to the analysis of corruption that occurs when the organised crime sector
and the government collude to exploit their monopoly on rule-making.
This book provides a careful balance between theoretical and institutional or
empirical contributions. Each chapter outlines the normative results of the
analysis in order to design more sophisticated deterrence policies.
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Executive Committee
Chairman Anthony Loehnis
Vice-Chairman Guillermo de la Dehesa
Jan Bielecki Philippe Lagayette
Honor Chapman Peter Middleton
Quentin Davies David Miliband
Sheila Drew Smith Mario Sarcinelli
Jacob A. Frenkel Alasdair Smith
Otmar Issing Catherine Sweet
Mervyn King
Officers
Director Richard Portes
Deputy Director Stephen Yeo
31 July 1995
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The economics of
organised crime
Edited by
GIANLUCA FIORENTINI
and
SAM PELTZMAN
CAMBRIDGE
UNIVERSITY PRESS
Published by the Press Syndicate of the University of Cambridge
The Pitt Building, Trumpington Street, Cambridge CB2 1RP
40 West 20th Street, New York, NY 10011-4211, USA
10 Stamford Road, Oakleigh, Melbourne 3166, Australia
© Cambridge University Press 1995
First published 1995
Reprinted 1996
First paperback edition published 1997
A catalogue record for this book is available from the British Library
Library of Congress cataloguing in publication data applied for
ISBN 0 521 47248 2 hardback
ISBN 0 521 62955 1 paperback
Transferred to digital printing 2005
CE
Contents
List of figures page xii
List of tables xiii
Foreword xiv
A cknowledgemen ts xvi
List of conference participants xvii
1 Introduction 1
Gianluca Fiorentini and Sam Peltzman
1 Overview 1
2 Alternative views on the nature of organised crime 3
3 Theories of the state and criminal organisations 8
4 The activities of organised crime 11
5 Problems in normative analysis 16
6 Alternative deterrence policies 19
7 Conclusions 26
PART I THEORIES OF THE STATE AND THE ORIGIN OF
CRIMINAL ORGANISATIONS
2 Organised crime, mafia and governments 33
Annelise Anderson
1 Introduction 33
2 Why mafias develop 35
3 The American and Sicilian mafias and the business firm 38
4 Transaction cost analysis and the Sicilian mafia 42
5 Public policy implications and further research 47
Discussion 54
Maurizio Franzini
vii
viii Contents
3 Gangs as primitive states 61
Stergios Skaperdas and Constantinos Syropoulos
1 Introduction 61
2 Origins in anarchy 63
3 Evolution 69
4 Concluding comments 76
Discussion 82
William J. Baumol
PART II THE CRIMINAL ORGANISATION AS A FIRM
Internal cohesion and competition among criminal
organisations 87
Michele Polo
1 Introduction 87
2 The military technology and the probability of success 89
3 Internal contracts and the dimension of the organisation:
the monopsony case 91
4 Internal organisation and competition among rival families 97
5 Conclusions 103
Appendix 104
Discussion 109
Pier Luigi Sacco
5 Conspiracy among the many: the mafia in legitimate industries 116
Diego Gambetta and Peter Renter
1 Introduction 116
2 The form of cartel agreements 118
3 A comparison of the Sicilian and New York mafias 119
4 Instances of mafia cartels 121
5 Conditions of emergence 125
6 Consequences 128
7 Conditions of disappearance 130
8 Prices and profits 132
9 Conclusions 133
Discussion 136
Luigi Campiglio
Contents ix
PART III ORGANISED CRIME AND STATE INTERVENTION
IN THE ECONOMY
6 Rival kleptocrats: the mafia versus the state 143
Herschel I. Grossman
1 Introduction 143
2 Production with a monopoly state 144
3 Welfare maximisation with a monopoly state 146
4 Kleptocratic policy with a monopoly state 147
5 The mafia as an alternative provider of public services 148
6 Nash equilibrium 151
7 Disruptive effects of the mafia 153
8 Conclusions 154
Discussion 156
Marco Celentani
1 Competition between mafia and the government 156
2 Free riding 157
3 Conclusions 159
7 Corruption: arm's-length relationships and markets 161
Vito Tanzi
1 Introduction 161
2 Markets and government 162
3 Arm's-length relationships and cultures 164
4 On corruption 167
5 Economic consequences of corruption 170
6 Policy implications 172
7 Corruption and organised crime 174
8 Concluding remarks 176
Discussion 181
Flavio Delbono
PART IV DETERRENCE POLICIES AGAINST LEGAL FIRMS
INVOLVED IN ILLEGAL ACTIVITIES
8 Auditing with 'ghosts' 185
Frank A. Cowell and James P. F. Gordon
1 Introduction 185
2 The model 186
3 Random audit 188
