Policy Enforcement in the Presence of Organized Crime: Evidence from Rio de Janeiro

Abstract

How does territorial control by organized crime groups affect the enforcement of public policies? We answer this question by studying the enforcement of social distancing policies in Rio de Janeiro during the COVID-19 crisis. Two criminal groups with distinct governance have \textit{de facto} control over several areas of the city: drug trafficking organizations (DTOs) and paramilitary groups (PGs). While the former funds itself mainly through the drug business, where their consumer base lives outside their turfs, the second obtains most of its profits from extortion and illegal commerce of public services to citizens within their territories. This induces different responses to policies that reduce economic activity, such as those enacted in the pandemic. To answer our main question, we estimate difference-in-differences specifications that compare social distancing before and after the outbreak in areas with and without territorial control by these groups. We document that in areas controlled by PGs, distancing was smaller than in government-ruled areas. On the other hand, DTOs' turfs had similar social distancing to places controlled by the government. Our results suggest that the effect of organized crime on the enforcement of public policies depends on their form of criminal governance.

Keywords: Organized crime, policy enforcement, state capacity, COVID-19

JEL Classification: K42, I12, O17, R50