Illegal waste disposal in the time of the mafia: a tale of enforcement and social well being

The current waste crisis in Italy is the most recent evidence that criminal organisations can impact waste management heavily. Nonetheless, this aspect has been neglected by current literature. We take the first step in filling this gap by developing a model which allows for the presence of a criminal organisation which extorts (socially costly) rent from agents willing to perform illegal disposal. In a setting where the public authority acts as a Stackelberg leader with respect to the mafia, we assume, coherently through real life observation, that enforcement efforts can only hit the criminal organisation: agents are therefore subject to indirect enforcement via the mafia extortion. Our main conclusion suggests that the presence of the mafia can lead to an increase in the level of economic activity and to less enforcement; under certain conditions, the related benefits can offset the damages from increases in illegal disposal and the social costs of the mafia's rent. These results provide a possible theoretical rationale for authorities' tolerance of the mafia in the waste cycle, and contribute to the explanation of some surprising stylised facts in the Italian case.