Protection is sold as an excludable private good because public guarantees invite tax evasion

Evidence

One possible reason is the problem of scale. First, if the guarantees the mafioso offered were too public, available to a potentially infinite number of sellers, he would be unable to enforce the collection of his cut from all his clients, who would thus find “tax evasion” easier. As with all public goods, every seller would have an interest in having the mafioso supply guarantees but also in not paying for that supply. A Palermo businessman dealing in tires put it starkly: “It is easier to eat from the plate of three who cover the whole market than from that of thirty-three who cover the same market” (I-8). Second, the mafioso would find it difficult to police all the transactions he guaranteed, thus risking the loss of his reputation if a lemon were to be sold behind his back. — Diego Gambetta, The Sicilian Mafia The Business of…, 56

Categorization

• XREF: Directly parallels Milgrom et al.’s finding that law merchant institutions balance the cost of full information against enforcement capacity — private judges face the same public-good free-rider problem.
• DEFINE: Explains why mafia protection is deliberately kept scarce and transaction-specific, a key move in Gambetta’s argument about protection as a commodity rather than collective safety.