Stockholm Institute of Transition Economics (SITE) cordially invites you to join the online brown bag seminar `Market Structure and Extortion: Evidence from 50,000 Extortion Payments´ with Maria Micaela Sviatschi (co-authors Zach Y. Brown, Eduardo Montero, Carlos Schmidt-Padilla. Read the abstract below!

About the speaker

Maria Micaela Sviatschi joined Princeton University as an Assistant Professor of Economics in the Fall of 2018. She is an affiliate at CESifo Research Network, NBER development and political economy group, the African School of Economics and the International Crisis Group.

Her research interests are labor and development economics, with a focus on human capital, gender-violence and crime. One strand of my research explores how children start a criminal career in drug trafficking and gangs as well as the consequences of organized crime on economic development and state capacity

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, firm responses to extortion, and downstream effects. 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.