The Rational Racketeer: Pasta Protection in Depression Era Chicago

Barbara Alexander

Journal of Law and Economics, 1997, vol. 40, issue 1, 175-202

Abstract: This study evaluates a Depression Era Chicago pasta racket against predictions generated by alternative economic models assuming varying levels of racketeer control over the industry. Models of an 'all-powerful" racketeer and of a racketeer in an omnipotent alliance with a dominant firm are rejected because the actual protection payments were much lower than those implied by the models. Moreover, the regressive structure of the payments made per macaroni press--a portion of the total racketeer-levied "tax"--was contrary to the models' predictions that the most efficient large-press firms would pay the highest tax rates. In contrast, all of theavailable information on the racket is consistent with a model in which the racketeer acts as a cartel ringmaster whose primary duties are to monitor and control members' output levels. In addition, the regressive tax would block entry by any displaced workers seeking to produce pasta using small, previously mothballed presses. Copyright 1997 by the University of Chicago.

Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jlawec:v:40:y:1997:i:1:p:175-202

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