Creative contract enforcement in Italy

M~ prv030499scan01Associating a brief, sharp pain with an event to be remembered is a strategy typical of of oral cultures.

In medieval Italy marriage contracts were witnessed by the children of the town–bound to live longer on average–and each child was slapped once and simultaneously handed a sweet to ensure he or she remembered.

That and many other interesting bits come from The Sicilian Mafia, by Diego Gambetta, an Oxford sociologist. This is a book I always wanted to read but only got around to recently.

What’s the relation to the mafia? Gambetta uses the anecdote to explain initiation rites in the Sicilian mafia, which include the pricking of a finger with a needle. I don’t know if the comparison to the children-slapping is apt, but I love the story.

The book tells a fascinating tale of the mafia, traced mostly from court transcripts, investigator files, and some interviews. He essentially advances an economic theory of the mafia: they are entrepreneurs and firms who collude and compete; the good they sell is not violence, or stolen property, but protection. That is, they enforce contracts in places the government can’t or won’t, like illegal and illicit markets, or areas where the police and courts are weak. They actively compete with the police to provide protection, and this good is in high demand. Every transaction done under the table cannot seek protection from the courts, and the mafia step naturally into this gap. Their name is their trademark, and they prevent new entry by force but also by complex social rules and ethnic identity.

Naturally the mafia also help create demand for the product, through intimidation and threat, but the real demand for services comes from government regulation or government failure. Every tariff or ban or rule creates an incentive for a black market, and the market evolves contract enforcement mechanisms where the state does not.

It’s a fascinating book. It also strikes me as fertile ground for a grad student to apply the many advances in contract theory since the book was written in 1993. Some different and even counterintuitive results might emerge. See Peter Leeson’s recent work on pirate economics for ideas. I’ll also be posting a paper soon on the industrial organization of guerrilla groups.

9 thoughts on “Creative contract enforcement in Italy

  1. I read Gambetta in a course on political order & violence in my second year of grad school. We had a fantastic discussion about it in relation to thinking about the origins of the state, taxation, etc. It was also interesting because one of my classmates was from a family that had to flee Sicily because of the Mafia. Interestingly enough, she believed Gambetta’s descriptions of Mafia behavior were completely wrong. I can’t recall exactly why, but I’d guess now that had something to do with the idea that they were actually engaged in providing a service.

  2. interesting discussion. I was actually composing a post on the mafia which I’ll leave for a while now!

    I think a fruitful line of analysis, which I was taking in my blog post, is how the functioning of the mafia validates Hernando de Soto’s ideas about property rights and development. He actually mentions this, albeit briefly and obliquely, in The Mystery of Capital.

  3. Chris, if you read Gomorra by Roberto Saviano you’ll realise that the ‘service provision’ theory outlined above is a myth. I do agree the Mafia fundamentally stems from a form of Government failure, but its obective function has nothing to do with the creation of value for communities (namely service provision). The mafia is inherently self-interested and ‘imposes’ its services rather than ‘being an option for better service delivery’, as your posts suggests. I think you went astray on this one.

  4. Pingback: Law Markets: Leave the Gun Take the Cannoli « Let A Thousand Nations Bloom

  5. I live in sicily and i am developing a business there and i have to deal with them everyday and its not as bad as everyone makes out. They are just powerful businessmen who look after their friends and own interests…..as do you all !!

  6. MIPC. Go to Capaci. You need to refresh your mind. Your words are stunnigly horrible. I hope you are not representative of the average Sicilian entrepreneur. SHAME ON YOU!!!

  7. The problem with Mafia is that it do many things and discussion is tainted by political correctness and ideology.
    Twenty years ago was not something unknown that many people asked to mafia bosses to help them settle disputes and other stuff, because the tribunals of the Republic were too slow (about ten years for a ruling).

    The difference, now, could be that the Mafia become too much interested in power and not enough in money. So it become less useful and more dangerous to people to associate with it.