SFB 303 Discussion Paper No. A-438

Author: Konrad, Kai A., and Stergios Skaperdas
Title: Extortion
Abstract: Extortion of productive enterprises ("shops") by organized crime groups ("gangs") takes place in virtually all economies. We examine this activity and we find that its main harm comes from the long-run erosion and distortion of useful production it induces and from the wasteful competition among gangs the presence of extortion rents can bring about. To minimize this harm then, the ability of community and authorities to commit resources for the long haul is important. Among other results, we also find: gangs, in order to recoup tribute losses, may increase their activity in response to increased police protection; forward-looking gangs tend to induce lower resource waste than gangs with short time horizons.
Keywords: Extortion, Organized Crime, Law Enforcement
JEL-Classification-Number: H50, K40, L51
Creation-Date: February 1994
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