From Wild West to the Godfather: Enforcement Market Structure
NBER Working Paper No. 8469
Weak states enable private enforcement but it does not always fade away in the presence of strong states. We develop a general equilibrium model of the market organization of enforcers (self-enforcers, competitive specialized enforcers or monopoly) who defend endowments from predators. We provide conditions under which a Mafia emerges, persists and is stable. Mafias are most likely to emerge at intermediate stages of economic development. Private enforcers might provide better enforcement to the rich than would a welfare-maximizing state - hence the State may find it difficult to replace the Mafia or competitive private enforcers.
Published: Anderson, James E. and Oriana Bandiera. “Private Enforcement and Social Efficiency." Journal of Development Economics 77 (2005): 341-366.