Defeating the gang: The social dynamics of compliance in a rake‐off economy*

I thank Antonio Gay, Alan Kirman, Peter Mollgard and Mark Salmon for very useful comments and suggestions on earlier drafts; I moreover thank seminar audience at the Economics and Mathematics Workshop (Florence) and at the Macro Workshop (EUI), as well as participants to the Inter‐University Working Group on Irregular Economies. Finally, I am very grateful to two anonymous referees of this journal whose perceptive comments and criticisms have substantially improved the paper, and to Marco Sandri for his help in the preparation of the figures. The usual disclaimer applies.

This paper studies the optimal State support policy for an economy of retailers in which there is a criminal organization (called the Gang) that tries to enforce a rake‐off scheme via punishment of reluctant retailers. The State aims at reducing the cost of reluctance through a suitable support policy (protection and insurance against physical damage) in order to undermine the Gang's threatening power and eventually to defeat it. Optimal support policies are determined for various rake‐off schemes under the assumption that retailers tend to abandon expensive strategies for cheaper ones.

Key words:

• Organized crime
• social dynamics
• inertial behavior
• social conventions
• state support policy

Notes

I thank Antonio Gay, Alan Kirman, Peter Mollgard and Mark Salmon for very useful comments and suggestions on earlier drafts; I moreover thank seminar audience at the Economics and Mathematics Workshop (Florence) and at the Macro Workshop (EUI), as well as participants to the Inter‐University Working Group on Irregular Economies. Finally, I am very grateful to two anonymous referees of this journal whose perceptive comments and criticisms have substantially improved the paper, and to Marco Sandri for his help in the preparation of the figures. The usual disclaimer applies.