a1 Duke University
How can people who lack access to effective government institutions establish property rights and facilitate exchange? The illegal narcotics trade in Los Angeles has flourished despite its inability to rely on state-based formal institutions of governance. An alternative system of governance has emerged from an unexpected source—behind bars. The Mexican Mafia prison gang can extort drug dealers on the street because they wield substantial control over inmates in the county jail system and because drug dealers anticipate future incarceration. The gang's ability to extract resources creates incentives for them to provide governance institutions that mitigate market failures among Hispanic drug-dealing street gangs, including enforcing deals, protecting property rights, and adjudicating disputes. Evidence collected from federal indictments and other legal documents related to the Mexican Mafia prison gang and numerous street gangs supports this claim.
(Online publication October 18 2011)
The author thanks the co-editors, three referees, Peter Boettke, Tyler Cowen, Marek Kaminski, Peter Leeson, Mike Munger, Benjamin Powell, Matt Ryan, Doug Rogers, William Shughart, Emily Skarbek, Dan Sutter, and Virgil Storr for helpful comments. The author thanks the Searle Foundation and the Horowitz Foundation for Social Policy for financial support.