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The Economics of Organized Crime and Optimal Law Enforcement

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  • Garoupa, Nuno

Abstract

This article extends the optimal law enforcement literature to organized crime. I model the criminal organization as a vertical structure where the principal extracts some rents from the agents through extortion. As long as extortion is a costless transfer from individuals to the criminal organization, not only the existence of extortion is social welfare improving because it makes engaging in a criminal offense less attractive but it also allows the government to reduce expenditures on law enforcement. When extortion is costly because the criminal organization resorts to threats and violence, the existence of extortion is social welfare diminishing and may lead to higher expenditures on law enforcement. Copyright 2000 by Oxford University Press.

Suggested Citation

  • Garoupa, Nuno, 2000. "The Economics of Organized Crime and Optimal Law Enforcement," Economic Inquiry, Western Economic Association International, vol. 38(2), pages 278-288, April.
    • Handle: RePEc:oup:ecinqu:v:38:y:2000:i:2:p:278-88
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    References listed on IDEAS

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    1. Garoupa, Nuno, 1997. "The Theory of Optimal Law Enforcement," Journal of Economic Surveys, Wiley Blackwell, vol. 11(3), pages 267-295, September.
    2. Konrad, Kai A. & Skaperdas, Stergios, 1997. "Credible threats in extortion," Journal of Economic Behavior & Organization, Elsevier, vol. 33(1), pages 23-39, May.
    3. 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 880-891, December.
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    5. 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 618-621, June.
    6. Nuno Garoupa, 1997. "The Theory of Optimal Law Enforcement," Journal of Economic Surveys, Wiley Blackwell, vol. 11(3), pages 267-295, September.
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    9. Bowles, Roger & Garoupa, Nuno, 1997. "Casual police corruption and the economics of crime," International Review of Law and Economics, Elsevier, vol. 17(1), pages 75-87, March.
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    12. Isaac Ehrlich, 1996. "Crime, Punishment, and the Market for Offenses," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 43-67, Winter.
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    JEL classification:

    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior

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