Doing Business Below the Line: Screening, Mafias and Public Funds

Abstract : Criminal organizations make large profits misappropriating public funds, causing an economic loss for the state and the strengthening of criminal groups. This paper evaluates a policy aimed at fighting this phenomenon and the displacement effects the policy caused. In 2013, the Italian government enforced a law screening mafia-related firms out of the application for European subsidies when applying for more than 150,000 Euros. We exploit this time-varying discontinuity to identify firms self-selecting below the threshold after the law was approved. We observe a large jump in firms applying for just below 150,000 Euros after 2013. Firms sorting are more likely to come from mafia-affected cities, display worse performances, operate in typical mafia-affected sectors and have balance sheet indicators suggesting potential for money laundering. The jump we identify corresponds to 3.8% of all subsidies assigned in our sample. Our findings shed light on the extent to which mafia-connected firms misappropriate public funds and on the effectiveness of screening policies applied discontinuously when mafias behave strategically.

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Kidnap: Inside the Ransom Business (oxford University Press)

Abstract : Millions of people work, live, and travel in high-risk countries; very few are kidnapped and, of those that are, almost all come home safely - how can this be? Abducting people is relatively easy but how much is your hostage worth; how do you negotiate a significant ransom; and, most of all, how do you conclude the deal without being caught? Kidnap is not the violent, chaotic, and ungovernable crime that it might appear. In fact it is sufficiently predictable and orderly to be insurable. This book shows how the powerful private governance system created by Lloyd’s special risk insurers takes control in transnational hostage situations to safely and cheaply retrieve kidnap victims. Based on extensive interviews with those who deal with kidnapping worldwide – insurers, security consultants, victims’ employers and families, and professional negotiators on both sides - plus a full transcript of a pirate ransom negotiation, this is a compelling account of a hidden world.

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Illicit Behavior and the Foundations of State-building: Evidence from Colombia

Abstract : Successful state-building after a long period of de facto dominance of non-state actors relies on the extent to which local populations trust the state institutions and reduce collaboration with illegal armed groups. In the last decade, the Colombian government and the international community have invested hundreds of million of dollars in an effort to consolidate state capacity in areas formerly controlled by illegal armed groups after a five-decade long internal conflict. We evaluate the impact of such efforts on the engagement of local communities in activities such as collaboration with non-state actors and growing illegal crops. Yet these behaviors are difficult to measure directly. To that end, we administer two list experiments to a sample of over 20,000 households in the municipalities that have received consolidation investments, as well as in a sample of matched-control municipalities. Our findings indicate that the overall level of engagement in illegal activities has decreased during the intervention period, but not differentially so in treated municipalities. However, this result is more nuanced when heterogeneous effects are explored.

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