DEFEATING THE GANG - THE SOCIAL DYNAMICS OF COMPLIANCE IN A RAKE-OFF ECONOMY

This paper studies the optimal State support policy for an economy of retailers in which there is a criminal organization (called the Gang) that tries to enforce a rake-off scheme via punishment of reluctant re tailers. The State aims at reducing the cost of reluctance through a s uitable support policy (protection and insurance against physical dama ge) in order to undermine the Gang's threatening power and eventually to defeat it. Optimal support policies are determined for various rake -off schemes under the assumption that retailers tend to abandon expen sive strategies for cheaper ones.