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Extortion as an obstacle to economic growth: a dynamic game analysis

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  • Dawid, H.
  • Feichtinger, G.
  • Novak, A.

Abstract

In this paper we use a differential game analysis to study the dynamic strategic interaction between a criminal gang extorting money from local shop-owners and the local police force. In particular, we are interested in characterizing which factors are important in determining whether the capital stock of local shop-owners keeps growing in spite of extortion or the criminal activity leads to a phase of stagnation of the local economy. A Markov perfect equilibrium of the game is characterized in order to address this question and several policy implications are derived to facilitate growth in regions affected by extortion.
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Suggested Citation

  • Dawid, H. & Feichtinger, G. & Novak, A., 2002. "Extortion as an obstacle to economic growth: a dynamic game analysis," European Journal of Political Economy, Elsevier, vol. 18(3), pages 499-516, September.
    • Handle: RePEc:eee:poleco:v:18:y:2002:i:3:p:499-516
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    References listed on IDEAS

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    1. Shimomura, Koji, 1991. "The feedback equilibria of a differential game of capitalism," Journal of Economic Dynamics and Control, Elsevier, vol. 15(2), pages 317-338, April.
    2. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
    3. Levitt, Steven D, 1997. "Using Electoral Cycles in Police Hiring to Estimate the Effect of Police on Crime," American Economic Review, American Economic Association, vol. 87(3), pages 270-290, June.
    4. Baveja, Alok & Caulkins, Jonathan P. & Liu, Wensheng & Batta, Rajan & Karwan, Mark H., 1997. "When haste makes sense: Cracking down on street markets for illicit drugs," Socio-Economic Planning Sciences, Elsevier, vol. 31(4), pages 293-306, December.
    5. Konrad, Kai A. & Skaperdas, Stergios, 1997. "Credible threats in extortion," Journal of Economic Behavior & Organization, Elsevier, vol. 33(1), pages 23-39, May.
    6. Feichtinger, Gustav & Wirl, Franz, 1993. "A Dynamic Variant of the Battle of the Sexes," International Journal of Game Theory, Springer;Game Theory Society, vol. 22(4), pages 359-380.
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    Cited by:

    1. R.F. Hartl & P.M. Kort & G. Feichtinger, 2003. "Offense Control Taking into Account Heterogeneity of Age," Journal of Optimization Theory and Applications, Springer, vol. 116(3), pages 591-620, March.
    2. Feichtinger, Gustav & Grienauer, Waltraud & Tragler, Gernot, 2002. "Optimal dynamic law enforcement," European Journal of Operational Research, Elsevier, vol. 141(1), pages 58-69, August.
    3. Herbert Dawid & Engelbert Dockner & Richard Hartl & Josef Haunschmied & Ulrike Leopold-Wildburger & Mikulas Luptacik & Alexander Mehlmann & Alexia Prskawetz & Marion Rauner & Gerhard Sorger & Gernot T, 2010. "Gustav Feichtinger celebrates his 70th birthday," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 18(4), pages 437-451, December.
    4. Daniele, Vittorio & Marani, Ugo, 2011. "Organized crime, the quality of local institutions and FDI in Italy: A panel data analysis," European Journal of Political Economy, Elsevier, vol. 27(1), pages 132-142, March.

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    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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