Defeating the gang: The social dynamics of compliance in a rake-off economy

This paper studies the optimal State support policy for an economy of retailers in which there is a criminal organization (called the Gang) that tries to enforce a rake-off scheme via punishment of reluctant retailers. The State aims at reducing the cost of reluctance through a suitable support policy (protection and insurance against physical damage) in order to undermine the Gang's threatening power and eventually to defeat it. Optimal support policies are determined for various rake-off schemes under the assumption that retailers tend to abandon expensive strategies for cheaper ones.