Corrupt administrators face a double-crossing problem that mafia protection solves

Evidence

Firms soon found a way of outwitting P. The method is simple: F1 agrees to pay P for the key piece of information after he gets the contract. F1 then secretly passes the information on to F2 in exchange for a share of the profits. When F1 withdraws, F2 walks out with the contract, owing P nothing. Of course, P then has an additional incentive to seek mafia protection, and to demand payment in advance. Such tricks may turn out to be too clever. More than one local administrator has lost his life because of deceptions of this kind. P, for instance, may sell the information to more than one firm; thus F1 and F2 both make the correct bid and find themselves at an awkward impasse. This confusion may arise either as a result of simple dishonesty or when two administrators unwittingly sell the same information. Mafia intervention avoids these difficulties. As the OCTF report put it, the participation of mafiosi reassures “contractors that they will only have to pay off once, that the amount will be reasonable, and that the services paid for will be delivered” (Fortune, June 6, 1988). — Diego Gambetta, The Sicilian Mafia The Business of…, 581

Categorization

• XREF: This is a textbook instance of the Milgrom/North game-theoretic problem where third-party enforcement must be credible; the double-dealing between F1, F2, and P mirrors the law-merchant mechanics of reputation and commitment problems.
• ADDENDUM: Connects to the reader’s private-enforcement framework alongside Gambetta-as-third-party, paralleling the private judges analysis in the law-merchant material.