Question

1. Why do monopolistic industries, such as organized crime or “The Mob” in 1935, produce less crimes, especially petty property crimes, in an area than do areas with relatively more independent, or small time criminals? (Explain in terms from Table 10.6, type of product, barriers to entry, number of firms, market power)
2. Explain, using economic terms (marginal benefit, marginal cost) why it was economically rational for crime leaders to assassinate Dutch Schultz in 1935, not Thomas E. Dewey?

(For more on their legends/stories, you can Google)

3. In a world of limited resources, why would the government of Bogota, Columbia in the late twentieth century/early 21^st century spend more resources in reducing the murder rate than reducing property crimes such as burglary and robbery? Consider tourism and travel as part of the city’s economy.

Answer 1

Organised crime groups are efficient in commiting crimes, where they earn large stake of money at one go, which is why they don't go for petty crimes which have less earning potential. They focus on products where they can setup a business and do it on a regular basis. Barrier to entry is the police force of a particular area and the scope of it in more areas. Number of firms would hardly be handful as to organise large scale crime is a difficult task. Market power depends on number of other mob groups who have that much power.

Dutch Schultz made his fortune in organised crime related activities. It was advantageous for Luciano who was heading the mob in absence of schultz as Schultz was convicted of tax evasion by Dewey. The marginal benefit was to the existing mob members and it's head, as schultz wanted to kill dewey, wherein the law enforcement would have come on them for killing a federal officer. The marginal cost was doing it discreetly and carefully, thus taking a risk.

The crime rate was very high in Columbia and murder is a serious offense, which the government decided to not take lightly. By reducing such crimes, the economy could prosper as more foreign investors would invest in the economy, increasing productivity and travel and tourism as well.