Mafia protection forecloses the reputational norms that honest trade normally evolves

Evidence

Furthermore, from (a) and (b) an important corollary follows. Consider the point made in Hume’s Treatise on Human Nature (but see also Sugden 1986) that norms of good behavior in business evolve from an economic interest in keeping promises and acquiring a reputation for honest dealing: “Afterwards a sentiment of morals concurs with interest, and becomes a new obligation upon mankind” ( 1969: 574). There being no such interest in Sicily, or only to a limited extent, on account of the protection of the mafia, the likelihood that these norms will become dominant, anticipating experience and giving rise to virtuous circles, is diminished. This may also explain why the opposite norm obtains and the ability to cheat is praised and encouraged. — Diego Gambetta, The Sicilian Mafia The Business of…, 71

Categorization

• XREF: Directly parallels Milgrom et al. on how institutions substitute for reputation; here the mafia crowds out the reputation mechanism that the law-merchant institutions were built to restore.
• DEFINE: Hume’s mechanism — moral norms grow out of egoistic interest in reputation — is the conceptual framework being applied.