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Extortion as an Obstacle to Economic Growth: A Dynamic Game Analysis

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Author Info

  • Herbert Dawid

    (University of Southern California)

  • Gustav Feichtinger

    (Vienna University of Technology)

  • Andreas Novak

    (University of Vienna)

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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File URL: http://128.118.178.162/eps/game/papers/0012/0012003.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Game Theory and Information with number 0012003.

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Length: 25 pages
Date of creation: 23 Jan 2001
Date of revision:
Handle: RePEc:wpa:wuwpga:0012003

Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on HP; pages: 25; figures: included
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Web page: http://128.118.178.162

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Keywords: Extortion; Differential Games; Capital Accumulation;

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References

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  1. Steven D. Levitt, 1995. "Using Electoral Cycles in Police Hiring to Estimate the Effect of Policeon Crime," NBER Working Papers 4991, National Bureau of Economic Research, Inc.
  2. 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.
  3. Konrad, Kai A. & Skaperdas, Stergios, 1997. "Credible threats in extortion," Journal of Economic Behavior & Organization, Elsevier, vol. 33(1), pages 23-39, May.
  4. Feichtinger, Gustav & Wirl, Franz, 1993. "A Dynamic Variant of the Battle of the Sexes," International Journal of Game Theory, Springer, vol. 22(4), pages 359-80.
  5. 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.
  6. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
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Cited by:
  1. 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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