Copyright Sociological Research Online, 1997

The Economics of Organized Crime

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The papers published in economics journals have the following format: a brief introductory paragraph is followed by the presentation of a formal model, with a concluding section summarizing the mathematical results. A model can be interesting for a sociological audience when the author reaches conclusions that are consistent with empirical evidence. This generally happens when the assumptions are plausible. In such cases, the model highlights the underlying (rational) mechanism that motivates agents, predicts behaviour and usually has a policy suggestion to offer. On the contrary, when the starting assumptions are outlandish and the 'stylized facts' trivial, the model may display a lot of intelligence, but has little sense.

This book contains an introduction and ten chapters, each followed by the comments of a discussant. Seven contributions are economists' papers of the type outlined above: they present a model which formalizes aspects of organized criminal groups' activities and their relationships with the state (oddly, section IV contains two papers that deal with tax evasion by legal firms: even granting the widespread confusion over what is 'organised crime', they go well beyond the self-imposed boundaries of the book's title).

All papers pass the test of 'intelligence': they are professionally crafted and often ingenious. Do they pass the 'sense' test? In most cases, the answer is mixed. For instance, Polo (chapter 3) models criminal organizations' hiring decisions, characterized as optimal and complete contracts. The model predicts that when two organizations coexist one next to the other, they have no incentives to hire recruits that live on the borders of the two territories. Strips of 'no-man's lands', in which neither organization hires any affiliate, develop. This conclusion certainly goes against established evidence from Sicilian cities, where each local district is controlled by an unique family, with no strips of 'no-man's land'. Celentani, Marrelli and Martini (chapter 10) study how a government might regulate 'victimless illegal activities', ie. those criminal activities for which there is a demand, such as the sale of narcotics, arms, and illegal gambling. The concept of 'victimless activities' obfuscates the fact that criminal organizations are often multi-purpose firms, engaging both in the supply of goods demanded by the market and the supply of 'offers that cannot be refused'. Moreover, as pointed out by the discussant (Scarpa), the concept of 'victimless activities' is dubious: rather than the individual, the victim of a flourishing drug or arms market is the community. Wisely, the discussant urges the reader to interpret the normative suggestions of the paper with 'some caution' (p. 272). The commentator (Sam Peltzman) of the following paper goes as far as labelling one of its central assumptions as 'stupid' (p. 293).

The chapter that in my opinion passes both the sense and the intelligence test is Skaperdas and Syropolous's Gangs as primitive states (chapter 3): it draws consistently on Jankowski's (1991) extraordinary ethnography of gangs in the USA, has realistic assumptions and reaches interesting conclusions. It shows that in anarchy entrepreneurs who invest more resources in acquisitive activities (such as military technology) receive a bigger share of overall endowment than those who invest in productive activities. The outcome is a fall in the total welfare of the community. Furthermore, if there is an option out of anarchy, agents who have a comparative advantage in productive activities will migrate. Poor economic performance and migration are both well known features of areas riddled by gangs and organized crime.

The three remaining papers do not conform to the above format: Anderson (chapter 2) suggests the marriage between Transaction-Cost Economics and the study of organized crime, while Tanzi (chapter 7) offers his views on the relationship between corruption, the state and culture. The essay by Gambetta and Reuter (chapter 5) combines industrial organization theory with the presentation of empirical evidence, by far the most appealing paper of the entire collection.

The attractive feature of the book are the comments offered by the discussants at the end of each chapter. From the (assumed) self-interest of the editors, however, they may be a liability: they give away most of the weaknesses of the book, but certainly make the volume a more interesting read. In the end, The Economics of Organized Crime is - to borrow the words of one discussant - 'an important stepping-stone ... not the ultimate answer'.

Federico Varese
Nuffield College
University of Oxford

Reference

Jankowski, K. (1991) Islands in the Streets. Berkeley: University of California Press.

Copyright Sociological Research Online, 1997