EFFICIENT POLICY IN A PREDATORY ECONOMY: TO HIM WHO HATH SHALL BE GIVEN?

James Anderson

International Economic Review, 2012, vol. 53, issue 1, 157-174

Abstract: Trade subject to predation generates externalities within and between markets. Efficient tax, infrastructure, and enforcement policies internalize the net externality—more trade implies fewer predators but drawn to trade at rising cost. The balance is positive (negative) as enforcement is weak (strong). Dual economies pair weak Periphery and strong Core enforcement markets. Efficient taxation and infrastructure promote the Core at the expense of the Periphery. Efficient enforcement promotes both. Tolerance (intolerance) of smuggling is efficient when Core enforcement is weak (strong). Tolerance of informal market Mafias that provide enforcement and infrastructure is efficient when Core enforcement is strong.

Date: 2012
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