Extortion of productive enterprises ('shops') by organized crime groups ('gangs') takes place in virtually all economies. The authors develop a framework to study this activity. The main harm of extortion comes from the long-run erosion and distortion of useful production, as well as from the destruction of property that they show can occur in equilibrium. Among other results, the authors also find: gangs may increase their activity in response to increased police protection; often, but not always, forward-looking gangs induce lower resource waste than myopic gangs. Copyright 1998 by The London School of Economics and Political Science
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Volume (Year): 65 (1998)
Issue (Month): 260 (November)
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