Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 600: Organized Crime, Corruption and Punishment

Maurice Kugler , Thierry Verdier () and Yves Zenou ()
Additional contact information
Maurice Kugler: University of Southampton, Postal: Department of Economics, Southampton SO17 1BJ, United Kingdom, and Center for Research on Economic Development and Policy Reform, Stanford University, Stanford CA 94305, USA.
Thierry Verdier: DELTA-ENS, Postal: 48 boulevard Jourdan, 75014 Paris, France
Yves Zenou: The Research Institute of Industrial Economics, Postal: P.O. Box 5501, 114 85 Stockholm, Sweden

Abstract: We analyze an oligopoly model in which differentiated criminal organizations globally compete on criminal activities and engage in local corruption to avoid punishment. When law enforcers are sufficiently well-paid, difficult to bribe and corruption detection highly probable, we show that increasing policing or sanctions effectively deters crime. However, when bribing costs are low, that is badly-paid and dishonest law enforcers work in a weak governance environment, and the rents from criminal activity relative to legal activity are sufficiently high, we find that increasing policing and sanctions can generate higher crime rates. In particular, the relationship between the traditional instruments of deterrence, namely intensification of policing and increment of sanctions, and crime is nonmonotonic. Beyond a threshold, increases in expected punishment induce organized crime to corruption, and ensuing impunity leads too higher rather than lower crime.

Keywords: Deterrence; Organized Crime; Corruption; Oligopoly; Free Entry

JEL-codes: K42; L13

44 pages, October 21, 2003

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