Trego's Mountain Ear

One of the blessings of research is that it can change perspective.  I’m accustomed to seeing organized crime as crime.  Luigi Belletta and Andrea Levezzi, in their paper “The economics of extortion: Theory and the case of the Sicilian Mafia” provide that different perspective. 

The 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.”

In their study, they describe the Mafia as a “source of extra-legal governance”.  This paragraph excerpts parts, but not all of the study:

“Being a provider of extra-legal governance, Mafias implement their own taxation system. In particular they impose extortion, i.e. the forced extraction of resources, on firms operating in legitimate sectors, under the threat of punishment for non-compliance. In this paper we provide a theoretical and empirical analysis of extortion based on a unique dataset of first-quality data on the exact amounts of pizzo paid by a sample of Sicilian firms, matched with data from their financial statements. Our aim is to understand how Mafia establishes the amount of money that businesses are forced to pay on the basis of their characteristics, namely size, and how this relationship varies by sector. In particular, we identify the stylized facts of the relationship between pizzo and firm size and sector and then show that they can be accounted for by a taxation model in which the criminal organization cannot perfectly observe firms’ productivity. The main empirical implication of our model, which we test using our dataset, is a concave relationship between firm size and the amount of pizzo paid.”

I guess it’s a question of how legitimate the government is, or at least the perception of legitimacy.  As I think back to the history of Rome, at the time the new testament was written, it seems to me that there were a bunch of people in Palestine who didn’t consider Rome their legitimate government.  Besides – the folks I know who supported Trump tend to figure Biden isn’t legitimate, and the folks who are happy with Biden don’t seem to figure Trump was ever legitimate.  I’m thinking that obeying the laws may not be an important part of a government’s legitimacy.

Take the time to read the article at Science Direct