Arbeitspapier

Imperfect law enforcement, informality, and organized crime

How does imperfect law enforcement affect drug trafficking, predation on firms, informality, and aggregate production? To quantify it, a general equilibrium occupational model is developed in which there is room for drug trafficking, crime against businesses, and tax evasion in the presence of imperfect institutions. Detailed micro-level data on business victimization and cartels in Mexico are used to calibrate the model. It is found that the imperfect application of the law generates considerable losses in production derived from a misallocation of occupations and resources. Finally, using counterfactual simulations, the effects of policies that seek to improve the allocation of resources are calculated. With complete law enforcement in the illegal drug market, the workers in that sector would relocate to the productive sector, and aggregate production would increase. Without crimes against businesses, which would allow a reallocation of work, capital, and occupations to the formal sector, production would increase even more. However, the largest effects come from a decrease in informality.

Language
Englisch

Bibliographic citation
Series: Working Papers ; No. 2022-16

Classification
Wirtschaft
Macroeconomic Analyses of Economic Development
Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
Institutions and Growth
Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
Illegal Behavior and the Enforcement of Law
Subject
Misallocation
aggregate distortions
drug cartels
crime
formal and informal sectors

Event
Geistige Schöpfung
(who)
Mascarúa, Lara Miguel A.
Event
Veröffentlichung
(who)
Banco de México
(where)
Ciudad de México
(when)
2022

Handle
Last update
10.03.2025, 11:41 AM CET

Data provider

This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.

Object type

  • Arbeitspapier

Associated

  • Mascarúa, Lara Miguel A.
  • Banco de México

Time of origin

  • 2022

Other Objects (12)