The Economic Effects of Mafia: Firm Level Evidence

We analyze the effects of Mafia infiltration in the legal economy. Combining information from investigative records with panel data on firms’ governance and balance sheets, we build an indicator of infiltration in firms located in an area with no tradition of Mafia. We show that Mafia targets young and less efficient firms and that infiltration generates a significant rise in firms’ revenues, with no proportionate growth in production inputs and a deterioration of the firm’s financial situation leading to market exit. These findings are consistent with a story of predatory behavior in which infiltration is used for money laundering or rent extraction. (JEL D22, G32, G34, K42, L25)