Tough on criminal wealth? Exploring the link between organized crime’s asset confiscation and regional entrepreneurship
Tough on criminal wealth? Exploring the link between organized crime's asset confiscation and regional entrepreneurship
0 ESSEC Business School Paris , 3 Av. B. Hirsch, 95021 Cergy Pontoise , France
This paper addresses the question BHow does the fight against organized crime affect regional entrepreneurship?^ We focus on asset confiscation in relation to alleged connections of their owners with organized crime, a highly debated policy measure against organized crime. Extending work on institutions and regional entrepreneurship, we propose that confiscation has contrasting effects on regional entries. On the one hand, confiscation of economic assets associated with criminal organizations' legitimate activities in a region reduces competition and triggers renewal, fostering new entries. On the other hand, seizure of criminal organizations' operational assets weakens their ability to exercise sovereignty, creating an institutional vacuum that lowers founding rates. Our results, based on a longitudinal study of Italian provinces between 2009 and 2013, provide support for both hypotheses. We also find that the negative effect associated with the confiscation of operational assets is mitigated when local g o v e r n m e n t s h a v e p o l i c i e s f a c i l i t a t i n g a s s e t redeployment.
Regional entrepreneurship; Founding rates; Organized crime; Confiscation; Institutions
Bwe have been hit hard…
if they [the law enforcement agencies] go on so,
they will not only arrest all of us but even our
Francesco Messina Denaro, in a pizzino (secret
Bernardo Provenzano, head of the Sicilian mafia
Organized crime nowadays plays a prominent role in a
variety of illicit and legal markets. Organized crime
manages illicit businesses such as drugs, firearms,
counterfeiting, cargo theft, human trafficking, illegal
gambling, extortion, racketeering, and usury
. Illicit markets’ value amounts to 2.1
trillion USD, approximately 3.6% of the world’s gross
domestic product (GDP)
organizations also reinvest their proceeds in legal markets,
carrying out legitimate activities and networking with
existing market players
(Anderson 1979; Arlacchi
. Cross-country reports covering Italy, France,
the UK, the Netherlands, and Spain have highlighted
substantial criminal investments in sectors as diverse as
construction, retail, energy, banking, waste and scrap
management, and agriculture (Transcrime 2015).
Despite the pervasive influence of organized crime
groups in markets, institutional responses to organized
crime infiltrations have often proved fruitless
2012; Vaccaro and Palazzo 2015)
organizations can be so entrenched that the practices they impose
are perceived as beneficial by market players (Pinotti
2015). In Sicily (Italy), workers and unions reacted
against the decision to seize assets worth 700 million
from Giuseppe Grigoli, founder of 6Gdo Srl, a retail
c h a i n e m p l o y i n g a b o u t 5 0 0 e m p l o y e e s a n d
encompassing 12 companies, 220 real estate assets,
and 60 ha of land
. Despite evidence
regarding Grigoli’s connections to Matteo Messina
Denaro, the current head of the Sicilian Mafia,
employees and unions challenged the confiscation because
the business was Bwell run.^ Such conviction is backed
by statistics showing that 85% of the companies seized
from criminal organizations do not survive the
This paper aims to shed light on some of the
economic consequences of institutional responses to
organized crime infiltration in markets. We ask the following
question: How does the fight against organized crime
affect entrepreneurial entries in a region? We focus on
asset confiscation in relation to alleged connections of
their owners with organized crime, a debated policy tool
to fight organized crime activities
research has explained heterogeneity in regional
entrepreneurship rates based on the quality of national and
(Williamson 2000; Fritsch and Storey
2014; Turok et al. 2017)
. For example, research shows
that regional entry rates increase when policies foster
knowledge transfer, human capital development, and
(Davidsson and Henrekson
2002; Acs and Szerb 2007; Caliendo and Künn 2014)
Dilli et al. (2017) theoretically and empirically derive
four different institutional constellations that can explain
differences in entrepreneurship types between regions.
While this stream of research contributed to our
understanding of how institutions channel society’s financial
resources, knowledge, and talent to productive
entrepreneurship, we still have a limited understanding of
policies aimed at reducing the allocation of resources to
unproductive or destructive forms entrepreneurship,
such as the control of organized crime.
To advance in this direction, we propose that
organized crime fulfill two roles within regions, entailing
opposing effects on regional entries. On the one hand,
organized crime groups act as business players,
investing the proceeds obtained from illicit activities in
legal markets and competing with prospective
(Becker 1968; Arlacchi 2007)
Confiscation of economic assets—the assets associated to the
business activities of criminal organizations, such as
their financial investments or firms—improves market
conditions and triggers processes of creative destruction
(Pe'er and Vertinsky 2008) that foster new entries. On
the other hand, organized crime can facilitate social and
economic exchange in the absence of a well-functioning
(Blok 1975; Gambetta 1993; Varese 2001)
Consistent with the view that the institutional framework
within which an activity is performed often determines
whether this activity is productive, unproductive, or
(Douhan and Henrekson 2010: 630)
organized crime may provide services—protection and rule
enforcement through violence—that can enhance the
workings of beneficial, but poorly implemented
institutions. Confiscation of operational assets—assets they
use to exercise sovereignty and enforce order, such as
the apartments and vehicles belonging to affiliated
families—increases the uncertainty associated with
economic transactions, thereby lowering entry rates.
Empirical evidence concerning the effect of
confiscation on entry is based on unique data regarding the
assets confiscated from organized crime groups in Italy
between 2009 and 2013. The context is apt to study the
effect of initiatives against organized crime and
entrepreneurship for two reasons. First, Italy’s main crime
groups—Cosa Nostra, ‘Ndrangheta, and Camorra—
have a pervasive influence on the context where
entrepreneurs operate, with interests estimated at around 10.7
. Second, Italy has
gradually strengthened the regulation against organized
crime, with legislation favoring the preventive
confiscation of criminal assets and their reuse for societal
purposes. Detailed data on the enforcement of such
legislation help us empirically validate the link between
confiscation and regional entrepreneurship, and draw
important conclusions for research and policy that
support the entrepreneurial society.
2 Theory and hypotheses
2.1 Entrepreneurship in the regional context
A core question in entrepreneurship is what conditions
explain variation in regional rates of entrepreneurial
activity, as measured by the number of self-employed
individuals or the rate of new firm formation
et al. 1994; Acs and Storey 2004)
. Interest in this
direction was stimulated by evidence linking the creation of
new businesses to employment growth, increased
productivity, and economic growth
(Fritsch 1997; Acs and
. At the micro level, research on the
determinants of regional entrepreneurship juxtaposed the
spatial context with the personality traits of business
founders (Zhao et al. 2010), their networks
, and the degree of acceptance of self-employment
within their regions
(Kibler et al. 2014)
. At a macro
level, heterogeneity in entrepreneurship rates has been
linked to the quality of institutions
(Turok et al. 2017)
Institutional factors have been broadly defined, and
span multiple levels of inquiry
to work in this tradition is the idea that markets are
embedded within broader social systems, which enable
and constrain the decisions of economic actors therein.
Williamson (2000: 597) identified four distinct levels of
institutions, ranging from macro aspects (customs,
traditions, informal norms, culture, and religion) to
environmental conditions (type and functioning of the judiciary
system, bureaucratic levels) to meso- and micro-level
factors affecting how daily economic transactions
unfold, such as governance structures, contracts, and
incentive systems. Empirical studies indicate that variation
in regional founding rates might stem from heterogeneity
in institutional factors that foster productive
entrepreneurship at each of the abovementioned levels
Fritsch and Storey 2014, for a review)
. For example,
Nifo et al. (2017)
demonstrate that the quality of regional
institutions, proxied by an index combining corruption
control, government effectiveness, regulatory quality,
the rule of law, and voice and accountability, shape the
choice of post-secondary education in Italy. Bad
institutions encourage rent-seeking career paths and discourage
the pursuit of technical and scientific studies, typically
associated with productive entrepreneurship. Along
Boudreaux et al. (2017)
show that increased
corruption shifts entrepreneurial activity towards
constructions and away from educational, scientific, and
This paper extends this line of research on institutions
and regional entrepreneurship, by placing a unique
emphasis on the fight against organized crime, which
received thus far scant attention. Elaborating on the mixed
evidence concerning the effect of corruption on
(Sobel 2008; Dutta and Sobel 2016)
advance two contrasting arguments. From a market
perspective, prior studies suggest that the pursuit of an
entrepreneurial opportunity depends on the Bportion of
the value that the venture creates that the entrepreneur
can capture for their own purpose^
Baker et al. 2005: 497; Bowen and De Clercq 2008)
In regions with substantial organized crime infiltrations,
the entrepreneur confronts greater uncertainty regarding
the extent to which entrepreneurial rents can be
appropriated. He also faces competition from firms connected
to criminal organizations. In such conditions, economic
actors are less likely to engage in productive
entrepreneurship—venture creation and investment in physical,
intellectual, and social capital. By contrast, strict
policies against organized crime reduce the payoff
associated with unproductive entrepreneurship and increase the
share of the value that the entrepreneur expects to
appropriate from a venture. In this perspective, a stricter
enforcement of asset confiscation can have a positive
direct effect on entry rates.
Alternative perspectives, however, suggest that the
effect of policies against organized crime on regional
entrepreneurship might be more convoluted
. A key assumption in the argument
above is that legitimate institutions—the state, or local
governments—can provide superior governance quality
than private-order institutions. In other words, policies
against organized crime result in increased productive
entrepreneurship only insofar as the state can provide a
speedy and balanced judicial system, intellectual
property rights and contract enforcement, and effective
transfer of economic wealth through taxation and regulation.
Some studies suggest that this assumption can be
(Grossman and Kim 1995; Hirshleifer 2001;
. Leeson’s (2007a, b) empirical investigation
of Somalia indicates that when governments act in a
predatory fashion, they may not only fail to increase
social welfare but can even reduce it below its level
under statelessness. Along these lines, the Sicilian and
Russian Mafia emerged in contexts where the local
authorities could not guarantee contract enforcement
and ensure property rights (Bandiera 2003). In Japan
in August–September 1945, after the government
collapse and before the US forces restored order, the
Yakuza, the Japanese mafia, played a major role in
getting markets restarted
(Dower 1999; Whiting 1999:
. Private-order institutions facilitate social and
economic exchange in the absence of a
(Blok 1975; Gambetta 1993; Varese
. In selected situations, organized crime may
represent Ban entrepreneurial response to inefficiencies in
the property rights and enforcement framework supplied
by the state^ (Milhaupt and West 2000: 43). Weakening
organized crime in these contexts creates an institutional
vacuum that hurt founding rates in a region. In what
follows, we advance a more nuanced account of the link
between policies against organized crime and regional
entrepreneurship reflecting both perspectives.
2.2 Asset confiscation and regional entrepreneurship
Institutional responses to organized crime activities,
such as legal persecution and the freezing, seizure, or
confiscation of assets resulting from organized crime
activities, have been increasingly adopted in several
countries. As the EU Action Plan to combat organized
crime of April 1997 states, BThe European Council
stresses the importance for each Member State of having
well-developed legislation in the field of confiscation of
the proceeds from crime.^1 The keystone of the fight
against organized crime in Europe is the EU Directive
on BFreezing and confiscation of proceeds of crime^
(2014/42/EU). Hailed as a breakthrough, the legislation
provided principles for the disposal and management of
assets which B…derive directly or indirectly from a
criminal offense, including any form of property and
any subsequent reinvestment or transformation of direct
proceeds and any valuable benefits.^ Asset confiscation
counters organized crime’s interests by limiting the
gains resulting from their activities
. However, the consequences of confiscation
for the assets themselves, and for the regions where they
are located, remain contested (Caramazza 2014).
In line with the previous section, we suggest that the
effect of confiscation on regional entrepreneurship
depends on the type of assets involved. Confiscated assets
include properties used by members of organized crime
groups to carry out their illicit activities (e.g., territorial
control, private protection, and extortion), such as real
estate, land or vehicles—which we label operational
assets—and economic assets—savings, financial
products, and company shares, resulting from market
investments of organized crime groups. These types of assets
vary in their end use and the ease of redeployment.
Operational assets are primarily used to exercise
criminal sovereignty in a region through intimidation, while
economic assets are deployed towards legitimate
business objectives, and their connection to their criminal
1 1997 Council Action Plan, Political Guideline No. 11
owners is less visible. Operational assets are tailored to
the needs of their criminal owners: they are designed to
serve illegal purposes and hard to be deployed. By
contrast, financial resources or equity shares in
companies are, to some extent, easier to convert or transfer.
These distinctions help understand the different
consequences that confiscation of economic and operational
assets entails. When organized crime operates in
legitimate businesses, local entrepreneurs compete for
resources in regional markets with firms financed by or
connected to organized crime. As suggested by prior
(Arlacchi 2007; Bonaccorsi di Patti 2009; Lo
, businesses infiltrated by organized crime
groups have certain competitive advantages compared
to legal ones: they operate in quasi-monopolies or
oligopolies, they incur lower labor costs, they have easier
access to capital, and they are more skilled at
rentseeking market behaviors, such as bargaining on tax
and social security contributions and work negotiations.
Prospective entrants confronting such competitors face
more challenging business conditions and a higher risk
that their venture will be unsuccessful. Confiscation of
economic assets in regional markets, by way of seizure
of established players connected to organized crime, or
stalling financial flows, reduces the competitive
disadvantage of new ventures and triggers conditions that are
favorable for entrants, such as intermediate levels of
(Caves and Porter 1977)
also allows the reallocation of existing resources or
demands to new legitimate players. The conjecture is
consistent with recent research in strategy and industrial
organization, which shows that the exit of dominant
players from regional markets disrupts local networks
and challenges competitive dynamics in the region.
This, in turn, creates conditions for resource
redeployment and innovative pathways for new entrants
and Vertinsky 2008; Lieberman et al. 2017)
When confiscation targets operational assets used by
organized crime to control their territory and provide
governance, its effect is less straightforward. Organized
crime groups act as monopolists in the provision of
protection over an allocated territory, defined by
geography and by the type of activity being protected
. Even though criminal organizations
do so by exercising coercion and threat, extorting
payments for the services they provide
intervention might facilitate social and economic
exchanges when the state is incapable of upholding law
(Greif et al. 1994; Dixit 2007)
. In such
Hobbesian situations, organized crime can stabilize and
make the market environment of productive activities
(Douhan and Henrekson 2010)
Weakening governance provided by private-order institutions
through confiscation of operational assets might
engender uncertainty that can reduce founding rates. The
negative effect of operational asset confiscation might,
to some extent, be compensated by an improvement of
the business conditions or resource redeployment.
However, these effects are not going to be reckonable in the
short term: significant investments are needed to
redeploy highly specific assets to legal ends. Similarly,
economic asset confiscation can also trigger some
institutional uncertainty. Yet, the destabilizing effect is minor,
given that economic assets are not visibly connected to
organized crime, or used to exercise sovereignty. Thus,
we hypothesize that the following:
H1a: The enforcement of confiscation orders
targeting organized crime’s economic assets in a
region is positively related to the number of
entrepreneurial entries therein.
H1b: The enforcement of confiscation orders
targeting organized crime’s operational assets in
a region is negatively related to the number of
entrepreneurial entries therein.
In developing our first set of hypotheses, we argued
that the key reason underlying the negative effect of
operational asset confiscation on entry is the
institutional void following the visible contestation of organized
crime’s sovereignty on a territory. Such a conclusion
leaves unanswered the question of what local
institutions can do to fill this void. We use the term local
institutional responsiveness to label the capacity of
institutions to handle the asset confiscation process and
the uncertainty triggered by confiscation. Local
institutional responsiveness relates to existing constructs in the
literature on institutions and entrepreneurship, such as
the rule of law, regulatory quality, or corruption control
(Dilli et al. 2017; Nifo et al. 2017)
. However, it differs in
two important respects. First, it has an exclusive focus
on receptiveness to organized crime, as opposed to rule
enforcement in general. It proxies the priority granted to
the fight against organized crime by local governments.
Several regions characterized by high regulatory quality
or the rule of law have a normative system that is unapt
to respond to organized crime activities (Germany in the
European context, or Tuscany in Italy). Second,
responsiveness typically entails concrete, operational
acts of sovereignty, rather than appealing to broad
principles. For example, it assesses local institutions’
capacity to handle the legal practices related to operational
asset confiscation, to finance asset refurbishment, to
reduce credit uncertainty, to increase presence and
governance on the territory, or to reduce uncertainty in the
redeployment process. We argue that such provisions
can contribute to filling the institutional voids and favor
resource redeployment, reducing the negative effect of
operational asset confiscation:
H2: The responsiveness of local institutions
reduces the negative effect of confiscation orders
targeting organized crime’s operational assets in
a region on entrepreneurial entries.
3 Context, data, and methods
3.1 Organized crime and asset confiscation in Italy
Organized crime can be defined as Bany long-term
arrangement between multiple criminals that requires
coordination and involves agreements that, owing to their
illicit status, cannot be enforced by the state^
2007a, b: 1052)
. In Italy, the main criminal groups
qualify as mafia-type criminal organizations.
Mafiatype criminal organizations combine four features: (i) a
strong territorial control; (ii) maintained through the
deployment of clienteles; (iii) the deliberate and targeted
exercise of violence; (iv) and sustained through political
connections and involvement in the economic activities
(Dalla Chiesa 2012). Italy’s main crime groups—Cosa
Nostra, ‘Ndrangheta, and Camorra—have a pervasive
impact on regional economies. Two other Italian
regions, Puglia and Basilicata, also saw the presence of
two criminal organizations since the 1970s, the
Basilischi and the Sacra Corona Unita
Since 1982, Italy has strengthened its legal
provisions against organized crime. In September 1982, the
Parliament approved the BRognoni—La Torre^ Law
(L646/82), named after the backers of the proposals.
This ground-breaking bill made two changes to the
Italian Criminal Code. First, it classified membership
of a mafia-type organization, defined as a Bstable
association that exploits the power of intimidation granted
by the membership in the organization and the condition
of subjugation and silence deriving from it to commit
crimes and control economic activities, concessions,
authorizations, and public contracts,^ as a crime
independent of other criminal acts. Second, the bill allowed
the confiscation of assets of individuals belonging to
criminal groups, or to their relatives who played a
coverup role for the criminal organization. To make law
enforcement effective, the Rognoni—La Torre Law
granted the judiciary full access to bank records to
follow money trails. The last paragraph of Article
416bis of the Italian Criminal Code (mafia-type association)
explicitly states: Bthe provisions above also apply to the
camorra, the ‘ndrangheta and other associations,
however known or called, even foreign, which use the
intimidatory power of the group to achieve the goals
typical of a mafia-type association.^ The bill was
complemented by later additions, which broadened the
scope of applicability of confiscation and the list of
crimes leading to seizure and confiscation proceedings
(L356/1992). In 1996, a new law (L109/96) prescribed
the disposal of confiscated assets for societal purposes.
The BNational Agency for the Management and use of
the Assets Seized and Confiscated from Organized
Crime^ (henceforth ANBSC) was established in Reggio
Calabria (Law 50/2010), with the mandate to track all
instances of confiscation and favor redeployment.
The Italian framework is one of the most advanced
regulatory systems against organized crime. The
distinctive features of the confiscation process can be
summarized as follows
(Fraschini and Putaturo 2013)
assets of suspects belonging to mafia-related groups,
of having committed related offenses, or living off
proceeds from organized crime are scrutinized by the
competent tribunal and can be targeted for confiscation, even
in the absence of evidence that proves a nexus between
organized crime and the accused. Such measures can
extend to family members and partners whose properties
can be accessed and disposed of by the suspect. A panel
of three judges scrutinizes the prosecutor’s request. If
the request is deemed legitimate, the asset goes to a
preventive judiciary administration. The decision can
be appealed if the asset owners feel their rights have
been breached. If the decision is confirmed in court, the
assets go under first-degree confiscation and are jointly
managed by a judiciary administrator and the ANBSC.
The decision can be appealed once more, in front of the
Court of Appeal, subject to reversal or confirmation
(second-degree confiscation). If confirmed, the asset
ownership is officially transferred to the State. The asset
must be formally assigned to a new owner (State bodies,
local governments, municipalities, social enterprises)
located in the region where the originating offenses
occurred, and must be used for societal purposes. The
logic underlying the co-location clause is that
confiscation compensates the original damage inflicted on the
The process described above differs from similar
procedures in Europe and the USA in three ways.2 First,
in the Italian framework, seizure can be enforced before
official ruling (preventive confiscation). Right after the
first decision, the assets cannot be accessed by the
original owner unless the order is reverted, even if he
has not been officially convicted of organized related
crimes. As a result, confiscation has immediate
consequences on the extent to which organized crime groups
can exercise territorial sovereignty. Second, while in
most countries the prosecutor needs to prove that the
property results from organized crime activity, in the
Italian framework, it is up to the convicted individual
to show that the seized property results from legitimate
activities rather than from criminal activities. This aspect
makes a reversal of decisions less likely. As illustrated
, using quantitative data and qualitative
evidence resulting from investigations, mafia defectors’
statements, and secret messages written by high-ranked
bosses of the Sicilian Cosa Nostra, such practice
increases the effectiveness of confiscation provisions.
Third, while the regulatory framework against
organized crime applies at the national level, its enforcement
depends to a significant extent on local level factors.3
One important factor is the extent to which local
institutions effectively handle the uncertainty related to the
confiscation process. During field interviews,
informants suggested that the responsiveness of local
institutions can be proxied by the presence of dedicated
dispositions in regional laws. Such norms facilitate asset
recovery and speed up the rebuilding of state
governance. Fourteen of the 20 Italian regions passed at least
one relevant provision on the topic; five regions have
more than one. About 65% of these bills were approved
2 The Italian system has no direct equivalent in any other country. The
closest reference points are the Racketeer Influenced and Corrupt
Organizations Act (commonly known as RICO) in the USA, a federal
law that provides for extended criminal penalties for acts performed as
part of an ongoing criminal organization.
3 Italy combines centralized lawmaking on general matters with
decentralization at the regional level of a number of areas, such as tourism,
public procurement, healthcare, and security. Each region can produce
legislation that allows a better implementation of national laws.
between 2008 and 2013. We use the number of regional
legislations concerning the management of the
confiscation process as a proxy for Local Institutional
Responsiveness. Examples of such legislations are provided in
Table A1 (Online Resource).
3.2 Data, methods, and variables
Our study is based on data on asset confiscation orders
reported by the ANBSC from 2009 and 2013 to the
Italian Senate. This source reports the exact location of
the seized asset and timeline associated with each
confiscation event. The unit of analysis of our study is the
province-administrative units at an intermediate level
between a region and a municipality. One hundred hree
provinces existed in Italy in the period of reference,
nested in 20 regions. We enhanced our understanding
of the context and improved our quantitative analyses by
conducting nine field interviews with volunteers of an
anti-mafia NGO, prosecutors, legislators, and experts.
Table 1 summarizes the definitions of the variables
and data sources used in this study. Our dependent
variable is Entrepreneurial Entries—the number of
new firms established in each Italian province in each
year. Our key independent variable is the total count by
type of assets confiscated in each Italian province in
each year. We track the number of Operational Assets,
such as movable and immovable property (e.g., real
estate, motor vehicles, and motorcycles) and the number
of Economic Assets,4 such as companies and financial
assets (e.g., shares and bonds) subject to confiscation.
We use the number of dedicated regional legislation
with provisions aimed at reducing uncertainty in the
confiscation process and facilitating the redeployment
of confiscated assets to proxy Local Institutional
Responsiveness. Based on fieldwork, this measure reflects
the scope and depth of regional responsiveness to
We control for factors that prior research
and Storey 2014)
found to be associated with regional
entrepreneurship, such as innovation intensity,
immigration rate, prosperity rank, unemployment, population
4 We reckon that these measures are not perfect. However, field
evidence indicates that 60% of the real estate is residential and used by the
mafia families to impose control on a territory. In unreported analyses,
we treated real estate, financial assets, and companies separately.
Results are in line with those presented in this paper. We created two
categories, rather than three, because our informants agreed that both
companies and financial investment capture organized crime economic
interests in legal markets.
density, and existing business density. Finally, because
asset confiscation might be more intense simply due to a
higher presence of mafia in a region, we control for the
Intensity of Mafia Activity in a region, using a
combined index of mafia-related crimes compiled on an
annual basis by ISTAT.5 We also include year fixed
effects. We ran a panel regression analysis with province
fixed effects and robust standard errors. All independent
variables are computed at year t − 1, while our
dependent variable is computed at year t.6
Table 2 presents the means and correlations. Descriptive
statistics highlight that economic assets (e.g., companies
and financial assets) are less frequently targeted by
confiscation orders (average 2.45 confiscation orders
per province per year) than operational assets (14.31
confiscations per province per year). The top ten
provinces in terms of asset confiscation are Palermo, Turin,
Rome, Catanzaro, Naples, Genoa, Lecce, Bari, Pavia,
and Reggio Calabria, against the belief that the mafia
operates only in the south of Italy. In terms of value,
reports of the ANBSC to the Italian Senate indicate that
real estate accounted for 81.5% of the total value of
confiscated assets (period 2005–2009) and for 70% of
the total value of confiscated asset in the period 2008–
2012. Figure 1 illustrates the number of assets
confiscated in each province.
Some covariates present high correlations, but the
mean variance inflation factor (VIF) score of each
model is well below 5. In unreported analyses, we removed
the variables with the highest VIF, with no impact on the
Table 3 presents our findings. Model 1 indicates that
provinces with a larger Business Density and higher
Prosperity Rank are associated with higher founding
rates. Confirming studies on necessity entrepreneurship,
Unemployment is positively related to provincial
entrepreneurship. The remaining controls are not
significantly related to entrepreneurial entries using a 5%
threshold, but their sign is interesting. The Immigration Rate is
negatively related to entrepreneurship, signifying the
5 We also controlled for mafia presence using the count of
municipalities dissolved for mafia infiltrations in a province in a year, using data
from the Antimafia Commission. Results remain unchanged.
6 We also explored different lag structures; however, the study period is
short and there is not enough time to observe a medium-run effect.
Regional archives; Avviso Pubblico
European Patent Office ISTAT ISTAT Sole24ore
propensity of first-generation immigrants to seek
positions in existing firms. Innovation Intensity negatively
affects entries. This may be because patent applications
are filed mostly by large firms in Italy. Such firms
typically dominate their markets, leaving no room for
de novo entrants.
Models 2–5 introduce our covariates of interest. As
predicted by H1a, the effect of Economic Asset
Correlations above 0.08 are significant at p < 0.05
Confiscation on Entrepreneurial Entries in model 2 is
positive and significant (b1 = 7.53, p < 0.01). Thus,
financial assets and company confiscation increases entry
rates in a province. Tackling organized crime business
infiltrations turns out to be beneficial for regional
economies, as these resources can be redeployed or open up
market opportunities that can be exploited by entrants.
By contrast, in model 3, the confiscation of
coFig. 1 Geographic distribution of
confiscated assets in Italian
specialized Operational Assets, such as real estate or
specialized machinery, has a negative and significant
effect on regional entrepreneurship (b2 = − 1.20,
p < 0.01). In line with H1b, because organized crime
uses these assets to provide governance, their
confiscation engenders uncertainty and lowers the payoff of
productive entrepreneurship. In model 4, we introduce
the interaction of Local Institutional Responsiveness
and Operational Assets Confiscation. The effect is
positive and significant (b3 = 1.02, p < 0.05), in line with the
view that operational asset confiscation works only
insofar as local governments provide institutional
responses aimed at fostering redeployment (H2). Figure 2
provides a graphical representation of the effect of
Operational Asset confiscation at different levels of Local
Institutional Responsiveness. Model 5 replicates model
4 but reports standardized beta coefficients to ease result
interpretation. One standard deviation (S.D.) increase in
the number of Economic Assets confiscated leads to a
0.03 S.D. increase in the number of new registered
ventures. One S.D. increase in the number of
Operational Assets confiscated leads to a 0.031 S.D. decrease in
the number of new registered ventures.
While the fixed-effects models allow us to control for
unobservable variables that do not vary over time, we
also want to address other forms of endogeneity. For
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10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160
Operational Asset Confiscation
example, regions might have some unobserved
timevarying endowments that make them better at enforcing
anti-organized crime laws and at the same time creating
good conditions for doing business. Econometrically,
this means that our independent and control variables
may be correlated with the error term of the dependent
variable, which might bias the regression’s coefficients,
its standard errors, or both. To test whether this problem
affects our results, we employed a one-step
ArellanoBond GMM system estimator for linear dynamic
(Arellano and Bond 1991; Blundell and
. The system GMM estimator exploits the
fact that time-varying unobservable variables affecting
both the endogenous variables and entrepreneurship will
be correlated with their lagged values. This is because
lags both correlate with the current manifestations of the
endogenous variables, and affect the dependent variable
only through their impact on the endogenous variables.
The implementation of this estimator also involves (a)
the insertion of the lagged dependent variable to control
for time-varying unobservable variables and (b) the
first-differencing of all variables, which helps account
for time-invariant omitted factors, similar to what is
done in fixed-effects regressions
are presented in model 6 (1-year lag structure) and 7
(27 The estimators require the differenced error term to be first-order
serially correlated (the AR(1) test must be significant), yet there should
be no second-order serial correlation (as evidenced by the AR(2) test).
The AR(1) test is significant (p < 0.05), yet the AR(2) test is not
year lag structure). They are in line with those presented
We conducted additional analyses to assess the
robustness of these results. First, to capture the
connections between politics, business, and crime in unreported
analyses, we replicated our analyses including the
political affiliation of the president of the province, their
place of birth, and their tenure. Our results remained
unaffected. These variables did not affect founding
rates. Second, our results supporting H1a could also be
driven by the reincorporation of confiscated companies
into new legal ventures. To rule out this explanation, we
reestimated the entrepreneurship rates, excluding the
sectors that are more prone to mafia infiltration in
Table A2 in the online Appendix. The main effect of
Economic Asset Confiscation remains unaltered: in
other words, results do not seem to be driven by
5 Discussion and conclusions
This paper represents, to our knowledge, one of the first
attempts to show, with longitudinal data, some of the
economic consequences of policies against organized
crime infiltrations in markets. We examined the
entrepreneurial implications of asset confiscation in relation
to alleged organized crime connections of their owners,
a widely used judiciary tool to fight the interests of
organized crime in a region. Our findings, based on
confiscation orders issued between 2009 and 2013 in
Italian provinces, indicate that clamping down on
organized crime economic assets may trigger processes of
local creative destruction, akin to those observed when
large incumbent firms exit regions
(Pe'er and Vertinsky
2008; Lieberman et al. 2017)
. We also found that
confiscation orders covering operational assets negatively
affect founding rates. Weakening criminal organizations
in the absence of a well-functioning state may create an
institutional vacuum, which increases governance
uncertainty and decreases regional founding rates.
Does the evidence presented in this paper imply that
policies against organized crime’s core illicit activities,
such as the provision of protection and the enforcement
of agreements through violence, entail short-term
disruption of regional entrepreneurial dynamics and
negative economic payoffs? The results regarding our second
hypothesis call for more cautious interpretations and
careful conclusions. We show that the unintended
negative effect of operational asset forfeiture is mitigated
when local institutions can complement confiscation
measures with initiatives intended to reduce uncertainty
and fill the voids left by criminal organizations. Thus,
our findings suggest that policies tackling organized
crime groups in markets can trigger resource
redeployment and entrepreneurship if complemented by local
By delving into the relationship between asset
confiscation and founding rates, this paper contributes to
research on the institutional antecedents of regional
entrepreneurship. This area of research emphasized that
variance in regional founding rates might stem from
heterogeneity in the quality of institutions, where
prospective entrepreneurs operate
Henrekson 2002; Acs and Szerb 2009; Caliendo and
Künn 2014; Dilli et al. 2017; Nifo et al. 2017; Turok
et al. 2017)
. We extend these studies by focusing on the
link between policies against organized crime and
regional entrepreneurship, which has thus far been
neglected. We show that economic asset confiscation
triggers a wave of entries, due to improved business
conditions and resource redeployment. Thus, policies
against organized crime’s business activities can
stimulate entries by increasing the relative payoffs associated
with productive entrepreneurship relative to
However, this contribution alone does not tell the full
story. Our finding that confiscation of operational assets
reduces regional founding rates also adds to institutional
economic studies on the role of private-order institutions
in social and economic exchanges
(Greif et al. 1994;
. This line of research suggests that private
profit-motivated property right enforcement may
represent a Bthird best^ option that safeguards economic
transactions when self-governance is unfeasible because
the community is too large, the system of social
sanctions is too weak, and formal state law is feeble. When
alternative options are not available, organized crime
represents Ban entrepreneurial response to inefficiencies
in the property rights and enforcement framework
supplied by the state^ (Milhaupt and West 2000: 43).
Accordingly, previous research highlighted the extent to
which the Sicilian mafia contributed to guarantee
contract enforcement in the upheaval of Sicily’s transition
out of feudalism
(Blok 1975; Gambetta 1993; Varese
or the role the Yakuza played in getting markets
restarted in Japan after World War II
. Most previous studies used formal
models or qualitative evidence
(Dixit 2007; Leeson
. To our knowledge, this work is the first
econometric study that indirectly shows that, under
certain conditions, activities which at first glance appear to
be obvious examples of non-productive
entrepreneurship can provide a second- or third-best substitute for
inefficient institutions (Douhan and Henrekson 2010).
The idea that confiscation of organized crime’s
operational assets may, in some circumstances, increase the
degree of uncertainty faced by economic actors and
discourage their productive entrepreneurial efforts
represents a provocative intuition worth further reflection
by those interested in institutions and entrepreneurship.
Our research also has implications for research on
institutional responses to organized crime. Research in
this tradition has emphasized the importance of
bottomup processes that challenge institutionalized criminal
practices. For instance,
and Palazzo (2015) showed that a group of young
activists was able to fight the practice of paying bribe
money (pizzo) for protection through localized
microprocesses that redefined the values of the business
owners in Palermo. While not denying the importance
of bottom-up processes, our study indicates that formal
policies, such as asset confiscation, can also be effective,
especially when coupled with appropriate initiatives by
responsive local institutions. Further research should
examine the joint impact of bottom-up and top-down
initiatives against organized crime, highlighting
complementarities and self-enforcing dynamics. Another
extension could be the study of the economic
consequences of other policy measures, such as the
dissolution of local governments due to the collusion between
local authorities and organized crime.8
Our study also has some limitations, which can pave
the way for further extensions. First, our ability to draw
causal inferences from the current sample and research
design is limited. Although fixed effects partly account
for unobserved heterogeneity at the province level, and
our list of controls includes the traditional variables used
to predict entrepreneurship rates, we cannot rule out the
possibility that unobserved time-varying factors might
bias our findings. The short length of our panel does not
leave room for alternative research designs. Distinct
states and regions within the European Union are
implementing different policies at different points in
time. Further work can attempt to strengthen the causal
inferences hinted at in this paper by exploiting staggered
adoption of confiscation practices. Second, our
measures are far from perfect: they account only for the
number of confiscated assets by type in each province
each year. Our source does not provide information on
the value of the confiscated assets. Such estimates are
highly controversial and hardly debated in criminology
. Third-party assessment of
the value of confiscated assets can strengthen the
conclusion proposed in this paper. Finally, we treat
categories of assets as if they were independent, while some
connection may exist through common ownership.
Ownership data can provide a richer picture of the
The design of effective asset confiscation has become
a priority in the European and American battle against
organized crime. A recent report estimated that just in
the year 2014, assets worth more than two billion euros
were confiscated from criminal groups in Italy,
Germany, Spain, France, England, and Wales
(Vettori et al.
2014; Transcrime 2015)
. The USA has extended such
practices to the proceeds related to terrorist groups
(Ryder 2013). Across Europe and in the USA, regions
vary greatly in the strength of their confiscation
legislation and the type of assets targeted by these policies.
While most policymakers and prosecutors target real
estate and immovable assets, others began to clamp
down on financial assets or business investments.
Although our results exploit inter-regional variation in
confiscation policies, the implications of the study can
8 We thank an anonymous reviewer for pointing us in this direction.
be generalized to address cross-country policymaking.
The main takeaway of our research is that to increase the
effectiveness of real estate confiscation, policies need to
be developed hand in hand with provisions aimed at
strengthening the responsiveness of formal institutions.
Initiatives clamping down on organized crime trigger
processes of creative destruction only when the state or
local institution can adequately redeploy the confiscated
assets to productive ends. We hope that our research will
raise scholarly awareness regarding how legal and
illegal players interact to shape the Entrepreneurial Society.
Acknowledgements We thank the Associate Editor Magnus
Henrekson and two anonymous reviewers for their feedback on
the first draft of this paper. The paper has also benefited from
insightful comments from Himanshu Bhatt, Sen Chai, Gary
Dushnitsky, and Wesley Sine, as well as during presentations at
the 2017 INSEAD Doriot Entrepreneurship Conference, at the
2017 Academy of Management meeting, at HEC Paris, and at
ESSEC Business School.
Open Access This article is distributed under the terms of the
Creative Commons Attribution 4.0 International License (http://
creativecommons.org/licenses/by/4.0/), which permits
unrestricted use, distribution, and reproduction in any medium, provided
you give appropriate credit to the original author(s) and the source,
provide a link to the Creative Commons license, and indicate if
changes were made.
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