The economics of extortion: Theory and the case of the Sicilian Mafia

Luigi Balletta and Andrea Lavezzi

Journal of Comparative Economics, 2023, vol. 51, issue 4, 1109-1141

Abstract: This paper studies extortion of firms operating in legal sectors by a profit-maximizing criminal organization. We develop a simple taxation model under asymmetric information to find the Mafia optimal extortion as a function of firms’ observable characteristics, namely size and sector. We test the predictions of the model on a unique dataset on extortion in Sicily, the Italian region where the Sicilian Mafia, one of the most ancient criminal organizations, operates. In line with our theoretical model, our empirical findings show that extortion is strongly concave with respect to firm size and highly regressive. The percentage of profits appropriated by the Mafia ranges from 40% for small firms to 2% for large enterprises. We derive some implications of these findings for market structure and economic development.

Keywords: Organized crime; Mafia; Extortion racketeering; Economic development; Optimal taxation (search for similar items in EconPapers)
JEL-codes: D86 K42 O17 R11 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0147596723000501
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:51:y:2023:i:4:p:1109-1141

DOI: 10.1016/j.jce.2023.05.003

Access Statistics for this article

Journal of Comparative Economics is currently edited by D. Berkowitz and G. Roland

More articles in Journal of Comparative Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().