Private States and the Enforcement of Property Rights - Theory and Evidence on the Origins of the Sicilian Mafia

Historical records show that the Sicilian mafia initially developed to protect land from predatory attacks, at a time when publicly provided security was scarce and banditry widespread. Using a common-agency model, the Paper shows that: (i) it is optimal for each landowner to voluntarily buy protection even if this results in a worse equilibrium for the landowning class as a whole and (ii) other things equal, mafia profits are higher where land is more fragmented. The argument is based on the fact that protection involves an externality because by buying protection each landowner deflects thieves on others? properties. Because of the externality, for each landlord protection is more valuable if they are one of the few to receive it, thus each landlord will be willing to pay more if some landlords are left out. Land fragmentation increases the number of landlords who would pay to keep some out, which in turn increases mafia?s profits. Using qualitative data from a parliamentary survey (1881), the Paper also shows that in 19th century rural Sicily mafia was in fact more likely to be active in towns were land was more divided.