Market Structure and Extortion: Evidence from 50,000 Extortion Payments

Abstract : How do gangs compete for extortion? Using detailed data on individual extortion payments to gangs and sales from a leading wholesale distributor of consumer goods and pharmaceuticals in El Salvador, we document new evidence on the determinants of extortion payments and the economic costs of extortion via pass-through. We exploit a 2016 non-aggression pact between gangs to examine how collusion affects extortion in areas where gangs previously competed. While the non-aggression pact led to a large reduction in violence, we find that it increased extortion by 15% to 20%. Much of the increase in extortion was passed-through to retailers and consumers: we find a large increase in prices for pharmaceutical drugs and a corresponding increase in hospital visits for chronic illnesses. The results shed light on how extortion rates are set and point to an unintended consequence of policies that reduce competition between criminal organizations.

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Labor Coercion and State Capacity: Evidence from Colonial Indonesia

Abstract : Fiscal modernization is key for long-run economic development. What then enables fiscal modernization? This is the first study to estimate the effect of state capacity expansion on labor coercion as taxation, a practice known as corvée labor. To do so, I construct a new database covering eighteen Javanese provinces over thirty-two years (1874-1905) during the period of Dutch colonial rule. I document the importance of corvée labor and find that national-level policy centralized state finances by gradually replacing corvée with a poll tax. At the same time, however, local state capacity expansion, primarily indigenous officials working as agents for the state, slowed the movement away from corvée. The relationship between state capacity expansion and fiscal modernization therefore depends on what part of the state is expanding. Opposing interests of different state actors can be key in understanding fiscal modernization and public labor coercion, so it is imperative to break open the black box of state capacity and analyze specific actors within the state.

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Production Networks and War

Abstract : How do severe shocks, such as war, alter the economy? We study how a country's production network is affected by a devastating but localized conflict. We use novel transaction-level data on Ukrainian railway shipments, complemented by administrative data on firms, to document the effect of war on firms and interfirm trade. First, we document substantial propagation effects-trade declines even between firms outside the conflict areas if one of them had traded with the conflict areas before the war. Our estimates suggest that the magnitude of the second-degree effect of conflict is one-third of the first-degree effect. Second, we study firm-level consequences of a change in production network structure. Firms that, for exogenous reasons, become more central in the production network after the start of the conflict receive a lasting boost to their revenues and a temporary one to their profits. A temporary increase in markups suggests a rise in market power as one of the mechanisms. Finally, in a production networks model, we separate the effects of exogenous firm removal and subsequent endogenous network adjustment on firm revenue distribution. At the median of the distribution, network adjustment compensates for 72% of network destruction.

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