Extortion

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