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The effects of extortion and security device adoption on entrepreneurial entry and exit: Evidence from Guatemala

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  • Estefan, Alejandro
  • Ordoñez, Romina

Abstract

Using survey data and administrative records from franchise stores of a multinational company operating in Guatemala’s food retail sector, we document stylized empirical facts about extortion of low-income microentrepreneurs and the protective impact of security cameras. Extortion curtails market entry, increases exit, and lowers economic competition. Security cameras reduce exit and improve competition. To rationalize these findings, we propose a standard model of industry dynamics in which we incorporate extortion as a sales tax and security devices as a costly investment that lowers the probability of victimization. We structurally estimate the model to conduct counterfactual policy simulations and compare the effectiveness of security cameras with that of alternative security devices.

Suggested Citation

  • Estefan, Alejandro & Ordoñez, Romina, 2025. "The effects of extortion and security device adoption on entrepreneurial entry and exit: Evidence from Guatemala," Journal of Public Economics, Elsevier, vol. 249(C).
    • Handle: RePEc:eee:pubeco:v:249:y:2025:i:c:s0047272725001628
    DOI: 10.1016/j.jpubeco.2025.105464
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    Keywords

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • K14 - Law and Economics - - Basic Areas of Law - - - Criminal Law
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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