The self-enforcing dynamics of crime and protection

Abstract

This article presents a model describing a symbiotic relationship between criminals and a partnership of protection providers, called the Firm. The partners of the Firm earn profits as they have market power in the supply of protection. The Firm recruits its new partners among criminals. As a result, the prospect of graduating to the Firm adds an incentive for violent crime. The result is a violence multiplier where more violence increases the profits to the partners of the Firm, in turn contributing to the incentive for violence. The violence multiplier also generates an incentive for the protection providers to welcome new partners, even though new partners dilute the profits. The model combines elements from contest theory and rent-seeking theory but, nevertheless, generates results that are in contrast to standard results from the rent-seeking literature. For example, due to the interdependence between protection providers and criminals, a decrease in the cost of violence increases violence more than pari passu and increases the value of being a criminal. Also, tougher competition between criminals may benefit all of them. The empirical relevance of key elements of this framework are confirmed by exploring unique data on incarcerated youth in South Africa. The empirical results confirm a hierarchical gang structure and indicate that this structure does indeed promote violence.