February 6th, 2007


Economics of Extortion

Anyone know of any articles that deal with the optimal strategy for dealing with extortion? For example, suppose you lived in a neighborhood controlled by a mafioso. Every month he demands 5% of your income or he will beat you up. If you pay the tax, you avoid immediate injury or death, but you finance the mafioso's ability to hire more goons and expand his operations. Thus empowered, he may come back at you for even more money in the future. When should you pay the tax? When should you fight?