Working Paper: CEPR ID: DP3806
Authors: Maurice Kugler; Thierry Verdier; Yves Zenou
Abstract: We analyse an oligopoly model in which differentiated criminal organizations compete on criminal activities and engage in 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. When bribing costs are low - that is badly-paid and dishonest law enforcers working 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 non-monotonic. Beyond a threshold, increases in expected punishment induce organized crime to corruption, and ensuing impunity leads to higher rather than lower crime.
Keywords: corruption; deterrence; oligopoly; organized crime; strategic complements
JEL Codes: K42; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Well-paid and hard to bribe law enforcers (K40) | Increasing policing or sanctions effectively deters crime (K42) |
| Low-paid and corrupt law enforcers (K42) | Increasing sanctions can lead to higher crime rates (K42) |
| Increasing sanctions (F51) | Higher crime rates (in weak governance environments) (K42) |
| Expected punishment (K40) | Crime rates (non-monotonic relationship) (K14) |
| Crime and corruption (K42) | Reinforce each other (feedback loop) (Y80) |