Mafia and bricks: unfair competition in local markets and policy interventions

In the article, we intentionally use the lowercase for the word mafia.

In Italy, there are four main mafia-type organizations: cosa nostra (originated in Sicily), camorra (in Campania), ‘ndrangheta (in Calabria), and sacra corona unita (in Puglia). Groups and families belonging to such organizations have gained more and more power over time, and spread to the rest of Italy, especially the richer northern regions, and to other countries (Pinotti 2015; Calderoni et al. 2016).

On this topic, see also Centorrino and Ofria (2001), and Paoli (2004).

An early example of successful anti-mafia policy is the RICO Law (Racketeer Influenced and Corrupt Organizations Act), introduced in the USA in 1970. At that time, the American mafia exerted a long-standing influence on the economy, and especially in the construction industry. In New York, five mafia families had almost complete control over the sector and labor unions (Jacobs et al. 1999). During the 1980s and 1990s, the application of the RICO Law weakened the overarching economic and political power of mafia organizations (Scotti 2002). The RICO Law shares some similarities with the anti-mafia policies analyzed in this paper. One of the differences is that, in the Italian case, the mafia has gained, over time, a high degree of moral legitimacy in local communities. This implies that the social context creates significant obstacles to the implementation and effectiveness of anti-mafia policies (Scotti 2002).

The effect of corruption practices, carried out by the organized crime, is discussed in Schelling (1971), Krueger (1990), Ofria and Farinella (2011), and Daniele and Marani (2011). The emergence of dominant positions can also lead to forms of state-capture, as argued by Von Luebke (2012).

On the empirical side, Bologna and Ross (2015) show that corruption deters entrepreneurial business activity especially over the long-run, while Berdiev and Saunoris (2018) find that corruption rises the opportunity cost of producing in the formal sector and encourages informal entrepreneurship.

On the role of the mafia or other informal organizations as alternatives to formal institutions, see Bandiera (2003) and Dixit (2007).

See Tanzi and Davoodi (2001) on the relationship between rent seeking and barriers to market entry for new entrepreneurs. Riccardi et al. (2016) analyze also the effect of rent-seeking activities on productivity and incentive to innovate. See Buchanan et al. (1980) for the theory of rent-seeking lobbyists.

They were nicknamed as “the four horsemen of the mafia apocalypse” (Fava 1983).

The Law 646/1982 is also known as the Rognoni–La Torre Law (after the names of the Italian politicians Virginio Rognoni and Pio La Torre). The Law identifies the key elements of a mafia-type association (apparently, the mafia “did not exist” in Italy before 1982) and focuses on the financial interests of criminal organizations. The intuition of Pio La Torre was that: “we need to break the link between the mafia and their property, undermining their economic power and marking the border between the legal and illegal economy.” Pio La Torre was assassinated by the mafia in 1982, during the drafting of the law.

One of the few cases of successful reconversions is the case of the construction company Ericina Libera Calcestruzzi. This represents a unique case in the construction sector, with the participation and effort of a plurality of stakeholders: institutional bodies, anti-mafia and environmental associations, and the former employees of the company, who then established the cooperative firm Calcestruzzi Ericina Libera Società Cooperativa. However, this success is not easily replicable, given the complex cultural, social, and institutional conditions in Sicily. As thing stand, the case of Ericina Libera Calcestruzzi can be viewed as a rare and virtuous example of reconversion of companies from the illegal to the legal circuit of the economy (see Cabras and Meli 2017).

In Italy, prefects are the local representative of the national government and are appointed by the President of the Republic.

Indeed, anti-mafia policies can have effects not only on the supply but also on the demand side of the construction industry by increasing uncertainty and reducing demand by mafia colluded buyers.

Data available upon request.

The results may be distorted by the volume and structure of the black market in Sicily. Unfortunately, disaggregated data on illegal workers at the municipal level are not currently available.

Results available upon request.

See, for example, De Feo and De Luca (2017).