Organised crime, corruption and punishment

Abstract

We analyse an oligopoly model in which differentiated criminal organisations 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 sanctions, and the crime rate is nonmonotonic. Beyond a threshold, further increases in intended expected punishment create incentives for organised crime extending corruption rings, and ensuing impunity results in a fall of actual expected punishment that yields more rather than less crime.

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