The Industrial Organization of the Mafia

This paper uses economic reasoning to analyze the organization of one of the most successful criminal groups in modern US history: La Cosa Nostra (LCN). Drawing on recently declassified Federal Bureau of Investigation reports and a hand-collected data set, I argue that the costs of violent disputes are key for an economic understanding of La Cosa Nostra's core institutions. Violent disputes were costly as they consumed resources, were destructive, and raised the group's profile. As a member did not bear the full costs of a profile-raising police investigation, each had a perverse incentive to resolve a dispute with violence. Hierarchical firms and a sophisticated court system were the LCN's solution. They gave bosses the authority and incentive to limit violent disputes and to use violence judiciously. La Cosa Nostra's longevity and success are, in part, a testament to these institutions' efficacy. Why can't we solve our problems peacefully among ourselves? (Bonanno 2013, p. 256)