Search for a theory of organized crimes

- We model occupational choice between labor, individual and organized crime markets.
- We model criminal organization's hierarchical structure in size and activeness.
- The overall rate and composition of crimes respond differently to labor conditions.
- An arrest policy is generally more effective than a nonpecuniary punishment policy.
- The level of crimes need not be lower under a monopolized criminal organization.

Casual empirical observations reveal no systematic relationship between the overall crime rate and organized criminal activity. We develop a search-theoretic framework to study the interactions not only between formal labor and crime sectors but also between individual and organized crimes. In equilibrium, individual and organized criminals face different arrest risks, success rates, reward structures and outside options. We characterize agents' “occupational choices,” the gang's hierarchical structure and the responses of unemployment, crime rates and crime composition to changes in labor-market conditions and crime-deterrence policies. We further assess the effectiveness of arrest versus punishment policies in deterring individual and organized crimes.