Uncovering illegal and underground economies: The case of mafia extortion racketeering

Lavinia Piemontese

Journal of Public Economics, 2023, vol. 227, issue C

Abstract: I propose a new approach to quantify the economic cost of hidden economies and apply it to the case of mafia extortion in Northern Italy. To quantify the extortion rate, unobserved in the data, I first show that extortion racketeering is linked to resource misallocation. Then, I implement a structural estimation based on matching the observed misallocation in markets defined as mafia-infiltrated, with that predicted from a model whose parameters are estimated using data on non-mafia markets or calibrated from the literature. The results suggest that the share of output that the mafia extorts from firms ranges between 0.5 and 5 percent of firm-level output for those firms that are subject to extortion, with an implied loss between 0.6 and 8 percent of aggregate value added.

Keywords: Organized crime; Extortion racketeering; Resource misallocation; Welfare loss; Within-industry OP covariance (search for similar items in EconPapers)
JEL-codes: D22 D24 D61 K42 O17 (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)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:227:y:2023:i:c:s0047272723001792

DOI: 10.1016/j.jpubeco.2023.104997

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