Abstract
Organized crime and the state have coexisted for almost two centuries: sometimes they “peacefully” collude, some other they fight. By the aid of a (Stackelberg) game-theoretic framework, I show that criminal organizations attack only if the state undertakes a successful economic repression to reduce criminal profitability (e.g., asset confiscation), especially after an illegal market boom, whereas they cease fire in presence of harsh “physical repression” (i.e., conviction of mobsters or military intervention). These results are strongly at odds with the existing literature, which instead claims that physical repression against organized crime is likely to cause a violent escalation, whereas targeting criminal revenues should deter conflicts. Moreover, I also find that the population propensity to rebel to organized crime -which is of paramount importance for an effective state repression- seems to naturally stem from a “coordination game” between local inhabitants. Finally, I show that high values of corruption and violence can coexist in presence of economic repression only, but corruption usually crowds violence out in presence of a strong physical repression. An empirical analysis on the Italian case study (and some empirical and anecdotal evidence on Mexico and Colombia) supports the theoretical predictions of the model, also showing that the time lag between economic and physical repression may be far from negligible, thereby resulting in a high number of mafia-related homicides.