Organised Crime, Corruption and Punishment
In this very interesting paper the authors analyze the role of competition and corruption in global organised crime. The utilise an oligopoly model in which differentiated criminal organisations globally compete on criminal activities and engage in local corruption to avoid punishment.
An interesting finding of the paper is that the effectiveness of policing and sanctions is highly contingent upon local conditions. For example, when law enforcers are sufficiently well-paid and corruption detection is highly probable, paying bribes become more difficult and increasing policing or sanctions effectively deters crime. On the other hand, when dishonest law enforcers work in a weak governance environment, the costs of bribing becomes lower and correspondingly, the rents from criminal activity relative to legal activity become sufficiently high. Under these circumstances, increasing policing and sanctions can generate higher crime rates. Therefore, beyond a threshold, increases in expected punishment induce organized crime to corruption, and ensuing impunity leads to higher rather than lower crime.
Citation: The Research Institute of Industrial Economics Working Paper, no. 600 (2003)