December 1, 2009

Organizing Crime

  • Peter Leeson

    Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics
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This paper investigates the industrial organization of criminal enterprise. We argue that differences in contestability across criminal industries crucially shape how producers in these industries organize. In more contestable criminal industries, producers use organizational hierarchy to enforce collusion and preserve their returns. However, hierarchy creates scope for boss self-dealing and so is costly. In less contestable criminal industries, where producers’ benefit from colluding is smaller, this cost  exceeds organizational hierarchy’s benefit. Here producers organize “flatly” instead. To examine  our hypothesis we explore history’s most infamous criminal organizations: the Sicilian Mafia and Caribbean pirates.