Organizing Crime

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 as a technology to enforce collusion, preserving their returns. Unlike legitimate-firm bosses, criminal-firm bosses may exercise coercive authority over their employees. This important difference permits organizational hierarchy to enforce collusive agreements between criminal producers. However, organizational hierarchy also creates scope for boss self-dealing and so is costly. In less contestable criminal industries, where producers' benefit from colluding is smaller, these costs exceed organizational hierarchy's benefits. Here, producers organize “flatly” instead. To examine our hypothesis we explore two of history's most infamous criminal organizations — the Sicilian Mafia and Caribbean pirates