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The economics of organized crime and optimal law enforcement

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  • Nuno Garoupa

Abstract

This paper extends the optimal law enforcement literature to organized crime. We model the criminal organization as a vertical structure where the principal extracts some rents from the agents through extortion. Depending on the principal's information set, threats may or may not be credible. As long as threats are credible, the principal is able to fully extract rents. In that case, the results obtained by applying standard theory of optimal law enforcement are robust: we argue for a tougher policy. However, when threats are not credible, the principal is not able to fully extract rents and there is violence. Moreover, we show that it is not necessarily true that a tougher law enforcement policy should be chosen when in presence of organized crime.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 246.

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Date of creation: Sep 1997
Date of revision: Dec 1997
Handle: RePEc:upf:upfgen:246

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Web page: http://www.econ.upf.edu/

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Keywords: Crime; punishment; law;

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  1. Shavell, Steven, 1987. "A Model of Optimal Incapacitation," American Economic Review, American Economic Association, vol. 77(2), pages 107-10, May.
  2. Syropoulos, C. & Skeperdas, S., 1993. "Gangs as Primitive States," Papers, Pennsylvania State - Department of Economics 10-93-25, Pennsylvania State - Department of Economics.
  3. Polinsky, A Mitchell & Shavell, Steven, 1991. "A Note on Optimal Fines When Wealth Varies among Individuals," American Economic Review, American Economic Association, vol. 81(3), pages 618-21, June.
  4. Isaac Ehrlich, 1996. "Crime, Punishment, and the Market for Offenses," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 43-67, Winter.
  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. A. Mitchell Polinsky & Steven Shavell, 1990. "Enforcement Costs and the Optimal Magnitude and Probability of Fines," NBER Working Papers 3429, National Bureau of Economic Research, Inc.
  7. Bebchuk, Lucian Arye & Kaplow, Louis, 1993. "Optimal sanctions and differences in individuals' likelihood of avoiding detection," International Review of Law and Economics, Elsevier, Elsevier, vol. 13(2), pages 217-224, June.
  8. Garoupa, Nuno, 1997. " The Theory of Optimal Law Enforcement," Journal of Economic Surveys, Wiley Blackwell, vol. 11(3), pages 267-95, September.
  9. Grossman, Herschel I, 1991. "A General Equilibrium Model of Insurrections," American Economic Review, American Economic Association, vol. 81(4), pages 912-21, September.
  10. Dick, Andrew R., 1995. "When does organized crime pay? A transaction cost analysis," International Review of Law and Economics, Elsevier, Elsevier, vol. 15(1), pages 25-45, January.
  11. Polinsky, Mitchell & Shavell, Steven, 1979. "The Optimal Tradeoff between the Probability and Magnitude of Fines," American Economic Review, American Economic Association, vol. 69(5), pages 880-91, December.
  12. Bowles, Roger & Garoupa, Nuno, 1997. "Casual police corruption and the economics of crime," International Review of Law and Economics, Elsevier, Elsevier, vol. 17(1), pages 75-87, March.
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