Extortion

Extortion of productive enterprises ('shops') by organized crime groups ('g angs') takes place in virtually all economies. We develop a framework to st udy this activity. The main harm of extortion comes from the long-run erosi on and distortion of useful production, as well as from the destruction of property that we show can occur in equilibrium. Among other results, we als o find: gangs may increase their activity in response to increased police p rotection; often, but not always, forward-looking gangs induce lower resour ce waste than myopic gangs.