Mafia protection paradoxically increases the number of lemons sold.
Evidence
It might be thought that if mafiosi protect individuals effectively, the overall number of lemons sold in a society will be reduced. Despite the apparent paradox, however, the opposite is true. This can be shown in a variety of ways (discussed in Chapter 7), but the most general demonstration runs this way. A seller who does not live off only occasional customers and is concerned about his future income has a rational interest in behaving honestly and acquiring a good reputation (Dasgupta 1988; see also Axelrod 1984). Even if dishonest, he still has an interest in sacrificing short-term benefits for the sake of prospective gains. Fundamental to this argument is the assumption that a good standing in business is easily destroyed. The question is whether mafia protection alters this tendency toward self-enforcing honesty. — Diego Gambetta, The Sicilian Mafia The Business of…, 66
Categorization
Category: Contrarian or Surprising Claims
- XREF: Direct counterpoint to the trusted-third-party welfare case in Milgrom et al.; private enforcement can raise adverse selection rather than solve it.
- QUESTION: Does this lemon paradox depend on the seller having both protected and unprotected customers, or does it generalize?
Related
- Mafia protection suppresses the emergence of honest-dealing business norms. (similarity 0.84)
- Mafia protection requires maintaining relations with the underworld it polices (similarity 0.82)
- Buying protection against oneself signals credibility and creates a new efficient equilibrium. (similarity 0.81)
- Private enforcement can perversely suppress self-policing among market participants. (similarity 0.81)
- Mafia protection is a demanded commodity substituting for trust (similarity 0.81)
- Mafia protection makes distrust self-perpetuating and endogenous. (similarity 0.80)
- Protected sellers lose the reputational penalty for cheating unprotected buyers (similarity 0.80)
- Protection is sold as an excludable private good because public guarantees invite tax evasion (similarity 0.79)
- The mafia protects everyone from peasants to arms dealers (similarity 0.79)
- Mafia protection is sold to whoever can pay regardless of class (similarity 0.79)
- Mafia protection treats crime as disputes, not offenses (similarity 0.79)
- Protection is a market where mafiosi may reject customers or bestow protection as gifts. (similarity 0.79)
- Protection availability lowers criminal career entry costs (similarity 0.79)
- Mafia protection is never fair or universal and ranges from genuine enforcement to extortion (similarity 0.79)
- Mafia protection customers range from spot buyers to kin (similarity 0.79)