Predation, Protection, and Productivity: A Firm-Level Perspective

Abstract

This paper studies the consequences of predation when firms deploy guard labor as a means of protecting themselves. We build a simple model and combine it with data for 144 countries from the World Bank enterprise surveys, which ask about firm-level experiences with predation and spending on protection. We use the model to estimate the output loss caused by the misallocation of labor across firms and from production to protection. The loss due to protection effort is substantial and patterns of state protection at the micro level can have a profound impact on aggregate output losses. Various extensions are discussed. (JEL D22, D24, J24, K40, L84, O17)

Private protection and public policing

“…Munyo and Rossi (2019) find that installation of police monitored cameras in Montevideo reduce crime in the area of coverage by 20%, and that neighboring areas also benefitted from the reduction in crime, demonstrating the public good nature of specific investments in protection that reduce the value of crime and hence incentives for criminals to target even the unprotected households. Besley and Mueller (2018) use a calibrated model of firm investment in private protection against predation to demonstrate that public and private protection are not substitutes. In a similar setting, DeAngelo, Humphreys, and Reimers (2017) use data from the National Hockey League to study the relationship between public rule enforcement by referees and private rule enforcement in the form of fighting (vigilante justice).…”

Mobile Money and Investment by Women Businesses in Sub-Saharan Africa

“…The ES data are fully comparable across countries and are collected via face-to-face interviews with business owners or top managers by using a global methodology. 4 The data have been widely used by several studies to explore the private sector in developing economies (Paunov, 2016;Besley and Mueller, 2018;Chauvet and Ehrhar, 2018;Hjort and Poulsen, 2019;Falciola et al, 2020).…”

Uncovering Illegal and Underground Economies: The Case of Mafia Extortion Racketeering

“…Ranasinghe (2017), for example, explores the role of property rights and their link to acts of extortion, while Ranasinghe and Restuccia (2018) quantify the effects of institutional differences in the degree of financial development and the rule of law on aggregate outcomes and economic development. Besley and Mueller (2018) examine the consequences of predation and estimate the welfare loss due to the misallocation of labor across and within firms.…”