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The Firm and the self-enforcing dynamics of crime and protection

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We model the symbiotic relationship between criminals and a partnership of protection providers - the Firm. In the absence of state authority, insecurity and crime generate a demand for protection. When the protection providers themselves are recruited among criminals, the prospect of graduating to the Firm magnifies the incentive for violent crime. More violence in turn increases the income of the protection providers. The result is a violence multiplier. Combining elements from tournament and rent-seeking theory, we derive results that contrast with standard results from the rent-seeking literature. For example, a decrease in the cost of violence increases violence more than pari passu and increases the value of being a criminal. The violence multiplier also generates an incentive for the protection providers to welcome new partners into the Firm. This is a crucial premise in explaining the viability of many violent structures. We confirm empirical relevance of key elements of our framework by exploring unique data on incarcerated youth in South Africa.

Suggested Citation

  • Kløve, Eva & Mehlum, Halvor, 2017. "The Firm and the self-enforcing dynamics of crime and protection," Memorandum 06/2017, Oslo University, Department of Economics.
    • Handle: RePEc:hhs:osloec:2017_006
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    References listed on IDEAS

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    1. Stergios Skaperdas, 2001. "The political economy of organized crime: providing protection when the state does not," Economics of Governance, Springer, vol. 2(3), pages 173-202, November.
    2. Halvor Mehlum & Karl Ove Moene & Ragnar Torvik, 2002. "Plunder & Protection Inc," Journal of Peace Research, Peace Research Institute Oslo, vol. 39(4), pages 447-459, July.
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    4. Anderson, James E. & Bandiera, Oriana, 2005. "Private enforcement and social efficiency," Journal of Development Economics, Elsevier, vol. 77(2), pages 341-366, August.
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    6. Steven D. Levitt & Sudhir Alladi Venkatesh, 2000. "An Economic Analysis of a Drug-Selling Gang's Finances," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(3), pages 755-789.
    7. Stergios Skaperdas, 1996. "Contest success functions (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(2), pages 283-290.
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    JEL classification:

    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)
    • L80 - Industrial Organization - - Industry Studies: Services - - - General

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