Eur J Law Econ (2008) 26:253–265

DOI 10.1007/s10657-008-9082-6

Dura lex, sed lex? Insights from the subjective theory

of opportunity cost

Giuseppe Eusepi

Published online: 26 October 2008

Springer Science+Business Media, LLC 2008

Abstract Seeking a grounding in Buchanan (Cost and choice: an inquiry in

economic theory, 1969) subjective theory of opportunity cost, this paper sets out to
fix a notional locus of the law in order to determine the cost of law enforcement.
The paper also explores the impact of unlawful activities on the economy and
analyses the evolution of individual criminal activities in collective criminal
organizations such as the mafia.

Keywords Law
Notional locus
Crime
Subjective opportunity cost

JEL Classifications K14
K42

In every human society, there is an effort continually tending to confer on one

part the height of power and happiness, and to reduce the other to the extreme
of weakness and misery. The intent of good laws is to oppose this effort, and
to diffuse their influence universally and equally.
Cesare Beccaria, Of Crimes and Punishments

1 Introduction

For the most part, economists have been, and still are, lured by the Classicists’
paean to the objectivity of cost. Much of what has been written about the objectivity
of costs has been vitiated by assuming that costs may be defined in terms of money

G. Eusepi (&)
Department of Public Economics and ECSPC, Faculty of Economics,
Sapienza University of Rome, Via del Castro Laurenziano, 9,
00161 Rome, Italy
e-mail: Giuseppe.Eusepi@uniroma1.it

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outlays only. This paper has been designed to rebut this claim and analyse crime
costs from the standpoint of the subjective theory of opportunity costs.
Although the notion of cost as an obstacle to choice is not new,1 there have been
few economists who have dealt with the subjective theory of opportunity cost more
extensively than Becker and Buchanan.2 However, there seems to be at least one
aspect of the subjective account that remains unexplored: namely, where to fix a
notional locus of the law in the evaluation of crime costs. With this question and
related issues concerning the role of individual morals, this paper is largely
concerned.
A key assumption is that the law is made to be enforced—however tough the law
itself might be. In a sense, this is in line with the ancient Roman brocard dura lex,
sed lex. While this logic generally has been found congenial to jurists, it would these
days probably be disputed by all economists, because it carries the implication that
the extent (and hence cost) of law enforcement is divorced from the degree of
harshness of the law.
An attempt is made in the first part of this paper to identify what I call the
‘‘notional locus of the law’’ in order to determine the cost of law enforcement. This
locus operates over a spectrum of possible degrees of enforcement intensity, ranging
from anarchy (no enforcement) to draconian or written-in-blood laws. Lawmakers
neglect the fact that individuals do not abide by the law (a fortiori severest ones)
spontaneously and that such behavioural propensity involves a cost that includes not
only the identification of the notional locus of the law, but also the perception of it
by law-abiding individuals and law enforcers. This means that anti-crime programs
have to be measured in terms of either governmental/public costs or households’
expenditures. Yet, the sum of these public and private costs reflects only monetary
costs. Such costs, as emphasised by Becker (1968) and Buchanan (1969), could
drastically underestimate the subjective costs that law-abiding citizens, businesses,
police and courts have to bear. It may, thus, be appropriate to evaluate the
individuals’ perception of the law (either heavy or mild) as their subjective cost.
The concept of notional locus of the law can be seen as the foundation stone of
the subjective theory of cost. If bureaucrats who are designing enforcement policies
and/or policemen who are implementing them, operate without this concept, they
would just rely on their own moral inclinations. In any modern liberal society where
moral values vary, this would be a recipe for a form of legal anarchy—the kind of
vigilante-ism of the ‘‘wild west’’. Equally, however, the notional locus of the law
excludes the possibility that the relevant agents are pure moral eunuchs,
implementing legal stipulations like automata.3 The primary function of the
notional locus of the law is to provide a basis for ensuring that the real subjective
cost is proportional to the magnitude and efficiency of the illegal activities.
Consequently, the costs in self-protection that law-abiding citizens and businesses
have to bear can be expected to depend in large part on the notional locus of the law

1
Ferrara’s ‘‘cost of reproduction’’ foreshadows or anticipates the concept of opportunity cost. On this see
Eusepi (1991).
2
Becker (1968) and Buchanan (1969).
3
I owe this point to Geoffrey Brennan.

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that lawmakers set. Thus, effective law enforcement is expected to be heavily

influenced by such notional locus of the law. From the economic point of view, laws
are neither neutral, nor incentive-free: the harshness or mildness of laws may either
deter illegal behaviours to a greater or lesser extent. Draconian or written-in-blood
laws raise serious questions concerning costs. A sanction perceived as too harsh by
an individual may induce a decrease in his incentive to abide by the law because he
has to face an extremely high cost in acting legally or, even perhaps, morally. In this
way draconian penalties create a conflict between individual morals and the law in
that the notional locus of the law/law enforcement formula is more restrictive than
individual morals would require.4 This is a fact that law enforcers as well as law-
makers should take into account in their activities.
In addressing these issues, my investigation tries to seek a link between unlawful
activities and their impact on the economy. Even if we were to concede that such a
link exists, it is quite difficult to provide supportive data. And if one were to show
the inverse relationship between economic growth and criminal activities, or
between wage trend on the legal labour market and rate of returns from criminal
activities, the results would provide an explanation for small, informal and
disorganized street gangs rather than for a stable, powerful structure expressly
created to commit crimes.
I shall attempt to provide a microeconomic analysis of organised illegal
activities. Under many respects, the structure and aims of illegal activity seem to be
akin to those of a legal activity. Both legal and illegal activities face organisational
and dimensional problems, and pursue maximization of returns and expansion.
However, unlike legal businesses, which supply goods and services to satisfy
needs—no matter whether they come from other businesses or final consumers—
criminal activities often enjoy an oligopolistic or even a monopolistic position, as is
the case of the mafia. It follows that the behavioural pattern of the demand and
supply does not describe the genuine choices that free individuals make when they
move from one producer to another at low opportunity costs. Such a behavioural
pattern is spurious due to the unlawful nature of the goods and services that are
demanded. Illegal goods cancel out competition on the supply side. Thus the
consumer of illegal goods enjoys no guarantees or protections in relation to the
goods he purchases. One of the fundamental dimensions of criminal activities is to
be found in their exclusion from the legal economy in relation both to structural
factors and to the nature of their nefarious enterprises.
The remainder of the paper is organised as follows. Section 2 focuses on the
relationship between economic incentives and moral equality versus moral
neutrality; Sect. 3 shows the shift from an individual criminal activity to a network
organisation; Sect. 4 provides a diagnosis of the mafia as a collective criminal
activity and tries to identify the monopoly power of the mafia in the ‘‘no exit’’ rule.
The last part of this section ends with a critique of the so-called repentant or judicial
collaborator policy used by criminal justice to break the ‘‘no exit’’ mechanism.
Section 5 offers some concluding remarks.

4
I am referring, of course, to the morals perceived by the individuals, not to the Kantian morals. For the
distinction between morality and morals see Pound (2002).

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2 Moral neutrality versus moral equality: at the origin of illegal activities

In the absence of rules, human actions are not subject to judgements. As the result of
this release from judgements we are unable to distinguish between just and unjust,
good and bad. All actions are, so to say, hanging loose in space and are regulated
exclusively by force. Thus, the narrower separation of the lawful from the unlawful,
or better, the just from the unjust lies within the larger frame of the making of rules
or laws. In saying this I am departing from a tradition associated with Kant. For him,
the distinction between lawful and just operates as a central conceptual tool. I prefer
not to use this distinction and with some hesitation I depart from Kant and assume
that lawful and just do not drastically differ. Effectively, I equate what is lawful with
what is just. My departure from Kant’s position builds on the argument that
democracy offers the best setting to fashion the core of my argument. I abstract,
therefore, from the extreme cases of anarchy and of draconian or written-in-blood
laws.
Despite my departure from Kant’s categorical imperative, two aspects surely
draw my attention in the present investigation. First, the distinction between law
lato sensu and just law; and second, the subjective theory of opportunity cost that
plays so vast a role in the actors’ behavioural patterns.
The hypothesis spelled out above regarding a nuanced watershed between lawful
and just actions hinges upon my belief that in democracies, law-making is a quasi-
contractual process where parties are morally equal.
Viewing no fundamental tensions between the categories ‘‘moral’’ and ‘‘polit-
ical’’, or ‘‘laws’’ and ‘‘ethical norms’’ entails a basic methodological implication
effectively obliging me to assume that laws are no emanations from heaven and,
hence, they are inevitably imperfect.
The basic propositions underlying my approach are: (1) that laws simply exist; (2)
that laws result from a non-discriminatory process; and (3) that laws can be modified
through a non-discriminatory process only. Under these conditions, the status quo is
a ‘‘good’’ in economic terms and a ‘‘value’’ in ethical terms. For analytical
convenience I shall try to represent my proposition graphically.
Let U represent the n notional loci of the law (with n = 1, 2,… N) that can be
visualized on the horizontal axis from anarchy (u1) to Draconian or written-in-
blood laws (uN). Let u* denote the notional locus of the law in democracy, let X
denote the set of x rules, let a, b, c and d be constant with a\ c. The notional locus
of the law can be specified as follows
xr ðuÞ ¼ a þ bu ð1Þ
and the law enforcement equation as
xe ðuÞ ¼ c  du ð2Þ
The increase in law enforcement is negative. If b = d = 1, Eq. 2 is inversely
proportional to Eq. 1 (Fig. 1).
The first immediate implication is that law modification involves a ‘‘costly’’
process. Without doubt there are a great many conceptions of the general
connotations of the law. It is tempting to indulge on this speculative issue.

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Ωc

Rules
Enforcement

a
ϕ1 ϕ* ϕN
Anarchy Laws in a democratic Draconian or written-
setting in-blood laws

Fig. 1 The notional locus of the law in different institutional settings

I, however, will focus specifically on penal law. In a non-technical sense, penal law
is just one aspect of any law and, hence, of the whole body of the laws. It is a datum
within the body of legal precepts in a broad meaning because violation is inborn in
the concept of law itself.
Lawmaking may be thought of in terms of a ‘‘choice’’.5 Like all choices,
lawmaking generates a hiatus between what it commands or allows and what it
forbids. In a morally neutral context where individuals are driven by economic
incentives only, there are good reasons to think that many may be induced to violate
the law; even when the law itself is subject to unanimous approval.
Let us leave aside for a while the question of why a certain number of individuals
are not law-abiding. Standard economic theory based on objective costs is unable to
explain why some are not law-abiders, while others are, despite their being both
driven by economic incentives. In arguing for and discussing economic incentives in
terms of objectivity, the objective theory of cost is unable to warrant its stances.
And, in fact, explaining the difference in prices between legal and illegal goods is at
least embarrassing. From that standpoint, the price of illegal goods is thought of as
higher than that of legal goods because producers of illegal goods incorporate the
risk of confiscation and incarceration in their prices. But, this is only a banal
generalization since illegal enterprises also escape the costs coming from taxation
and regulation, which legal enterprises have to cope with. Thus, there is no reason
for an individual to commit a crime if his benefits are anticipated to be negative or
only slightly above zero. Clearly, he decides to go into crime because he thinks that
his benefits will be larger than those he would have by employing the same
resources, with an equal risk involved, on the legal market. A legal economy, or
better a politico-economic setting, whether liberal or totalitarian, heavily influences
the size and costs of illegal activities and particularly crime economy.

5
See Eusepi (2006) and for a different view Kliemt (2006).

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In consequence, attention must be devoted to the core issue concerning the

relationship, if any, between the legal and illegal economy. Specifically, what is the
cost of crime born by the community?
My point may be made best from comparing the community with an insurance
company that sells larceny policies. In drafting its budget, the insurance company,
like any firm, is required to compute the likely pattern of its costs and benefits. Since
it has to do it economically, its budget will be designed to minimize its costs. The
advocates of the objective theory of cost purport to show that if no larceny occurs
(no money outlays), no costs are suffered by the insurance. Clearly, the objective
cost of crime measured in money terms is zero. Let us extend the insurance logic to
the community as a whole and its relevant institutional setting. Despite its validity in
determining a notional locus of the law in any analysis based on the subjective
theory of opportunity cost, the institutional setting is totally ignored by standard
analysis based on the objective theory of costs. To illustrate the behavioural
implications of this view via a basic, yet unhighlighted example, let us assume a
constitutional context where criminal law is written in blood and where law
enforcement agencies behave efficiently and effectively (this would require, among
other things, a zero corruption level). Such a framework would lead to the
paradoxical result that crimes are not committed, thus reaching the same
conclusions as those outlined in the case of the insurance company. Since no
crime has been committed, the community as a whole is assumed not to suffer any
harm or cost deriving from law enforcement—even in the case of the law written in
blood. There is no doubt that all this runs counter to the subjective theory of
opportunity costs.
However, I shall set aside this point and deal with it in detail in the next section. I
now confine my discourse to another crucial shortcoming underlying the objective
theory of costs. In order to make the objective theory of cost plausible, one should
demonstrate that all the expenses related to the crime-contrasting policy could not
have been better employed elsewhere in the economy. One should also assume that
the notional locus of the law lies at its optimal position when a rule is introduced by
a bloodthirsty dictator and enforced by police officials who behave as if they were
law-enforcing automata. Again, such behaviours are contrary to the subjective
theory of opportunity cost for which the fundamental elements in costs are supplied
by the perception of the notional locus of the law, by both law enforcers and the
community in general (potential lawbreakers included). All this considered, one
could not think of the efficient outcome as characterized by zero crime and should
accept Becker’s proposition that some crimes will inevitably be committed.
By the use of the subjective theory of opportunity costs, we can show that a
sentencing system that sets the notional locus of the law at a level where laws are
written in blood is doomed to failure and it has to be regarded as the worst
predicament. To postulate such a predicament serves as a way of illustration. And
the fact that no democratic government would set its notional locus of the law at
such a level for fear of being voted out of office does not diminish the theoretical
value of this point. Primarily, the notional locus of the law serves to provide a
consistent view of social costs.

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Eur J Law Econ (2008) 26:253–265 259

All democratic settings we are familiar with are based upon a community formed
by the individuals who are willing to pay a ‘‘social cost’’ (measured by budget
appropriations) and a private cost (measured by expenditures in insurance and
protection). Note that private expenses for self-protection produce an indirect
deterrent effect on potential criminals and, thus, reduce the number of crimes.
It is also the notional locus of the law/law enforcement formula that plays a
crucial role in deterring crime. Specifically, a severe criminal law along with a loose
enforcement policy is apt to favour criminality. Weak enforcement encourages the
production of illegal goods and services and fails in its function to protect legal
enterprises. It has also the potential to work against the positive effects that
competition has on the legal economy.
Like legitimate enterprises, criminal enterprises seek the maximization of profits
and share a common organizational model. Three types of organization may be
distinguished: Self-employed business; network business; and collective business.
Such types have certain common characteristics. Illegal markets negatively impact
upon labour market rules and upon the fisc as well. If governments resort to drastic
forms of highly regulated labour markets and a high tax pressure on labour and
businesses, individuals tend to transfer their activities to illegal markets, especially
if the probability to be apprehended is low, as is the case of a loose enforcement. In
Italy, for example, while the crime-contrasting activity is formally compulsory, the
costs that the enforcement requires are largely disregarded. This illustrates the harsh
law/loose enforcement paradigm nicely. What we call compulsoriness of the
criminal law is really nothing more than a simple opening of a file, a pure
bureaucratic act, void of any effective consequences for criminals. To avoid such a
framework, I suggest that law-enforcing costs should be connected with both the
notional locus of the law and the level of impunity that governments are willing to
accept.
Less severe laws than those written in blood should be invoked to prevent
lawbreaking, provided that they operate against a background where the risk of the
lawbreaker being apprehended is tolerably high. In sum, it is quite in the spirit of
psychological realism that I suggest that an ex ante perception of apprehension is
more effective than an abstract severe legal precept. And, in fact, an increase in the
probability of being apprehended and convicted makes the lawbreaker’s subjective
cost higher. Thus, the deterrence policy or equilibrium of punishment requires that
incarceration and punishment be less severe. This would involve also a reduction in
the expenses for incarceration that the community is asked to pay.

3 The logic of the criminal business: a subjective cost analysis

Unless the analysis of the preceding section is clarified, one faces implications that
are problematic, if not wrong.
In fact, in the preceding discussion, economic incentives have been related to
moral equality (legal enterprises) and moral neutrality (illegal enterprises). From
such framework, one would argue that unlawful activities are necessarily substitutes
for legal activities—as if the two were mutually exclusive. The reason why I do not

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accept the logic underlying Kantian morals in toto lies in the fact that, as in the
objective theory of cost, that logic leads to just such a false dichotomy. Real
individuals’ behaviours nuance the distinction between moral equality and moral
neutrality.6 It is thus the analysis of real individuals’ behaviours, not ideal
individuals, that forces me to adopt a soft version of the Kantian distinction.
Let me be clear about this point. According to the Kantian morals stricto sensu,
an enterprise that evades taxes, but that under all other respects follows the rules,
and an individual who on weekdays works in the legal market and during the
weekends sells drugs in the street of Rome or New York, would fit either the neutral
morals category in toto, or should simply be omitted from the analysis as spurious
cases. Although the distinction between moral equality and moral neutrality is
useful as a conceptual framework, it leaves a grey zone. As soon as one moves to
the concrete examples illustrated at the outset of my discussion, one sees such
phenomena as located within the moral neutrality spectrum. One can perfectly well
assert that the tax-dodger enterprise and the drug seller are driven by the same
economic incentives, which differ only dimensionally, but not genetically, so to say.
Caught in such a predicament, the tax-dodger enterprise and the drug seller face the
same crucial problem in regard to matters of how much wealth to put at risk on the
illegal capital market and how much labour to supply to the illegal labour market
respectively.7
For the sake of expository clarity, I am going to illustrate the two problems
separately and for methodological reasons I first focus on the drug seller case as an
illustration of an individual enterprise. Multifaceted explanations for individual
illegal activity have been advanced. The standard view assumes that an individual’s
decision to engage in an illegal business is motivated by low wages in the legal
labour market. This serves to downplay the issue. For it seems to imply that if wages
increase, individual criminal businesses would almost certainly decrease in number,
up to the point of fading out.
A much different picture emerges from analyses inspired by welfarist prescrip-
tions. As I say, I find it difficult to swallow those prescriptions. Yet, they are
acclaimed in political circles, especially those supporting public intervention in the
economy. For example, a couple of decades ago, an Italian Minister of Finances
stretched the consequences of this thesis to extremes. Wishing to prevent smuggling
between Albania and Apulia from escalating because, among other things, the
incessant battle between smugglers and tax police on Italian territory had given rise
to social alarm, he made the ludicrous proposal to recruit all smugglers in the tax-
police corps. Applied to our drug seller, this logic might induce to think that the
minimum wage on the legal labour market is equal to the profit that the drug seller
makes out of his business. The story could go on endlessly, but to keep going along
a wrong path is not a worthwhile exercise. Instead, in order to pursue my refutation
of the objective theory of cost, I shall focus on the other distinguishing element of
criminal businesses.

6
For further details on this point see Eusepi (2006). Especially pp. 37–40.
7
For a slightly different approach see Freeman (1996).

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Central to the objective theory of costs is the notion that criminal activities are
as palatable in economic terms as they are because they insure immediate
availability of gains before bearing the likely costs. In a nutshell, a peculiarity of
the criminal business seems to be that of allowing the temporal inversion of the
cost-benefit ratio. What in the end makes the difference between an income earned
in legitimate activities, say an academic profession, and an income from an
unlawful activity, say a bank robbery, seems to consist of this capsized benefit-
cost ratio.
The story changes if one moves from costs conceived as money outlays to costs
conceived as obstacles to choice. Yet though it is tenable, also from the viewpoint of
the subjective theory of cost, that the benefit deriving from the bank robbery is
immediately available, it is extremely doubtful that this benefit implies no costs for
the robber.
What the objective theory of cost ignores is that costs relate to choice and, thus,
that theory is unable to keep the choice-influencing cost (subjective cost) separated
from the choice-influenced cost (in our case, apprehension, trial and conviction).
According to the objective theory of cost, the latter type of costs are the only costs.
It is here that this theory hopelessly muddles the question of who will pay the cost if
the robber is not apprehended. What may we suppose to be the consequences of
such a misconception? Oddly enough, a perfect bank robbery, like any perfect
murder, would yield only benefits without involving any costs. Yet bizarre my
contention might appear at first sight, I do not hesitate to say that the analysis of the
objective theory of cost runs counter basic economic principles themselves, namely
the efficiency principle for which inputs/costs have to be minimized, but would
never amount to zero. If inputs are zero the output is zero too.
It is exactly this logic that forms the background in which the subjective theory
of opportunity costs has grown up. Hence, if we go back to our example the
analysis in subjective terms is very different. Before the bank robbery is
committed, the robber has to make detailed plans that involve decision-making
costs as a long period of watching, the decision as to whether to act on his own in
order to keep the entire loot, or with others because acting alone would involve
greater risk. Quantifying likely costs represents the subjective obstacle to
committing a robbery. And these costs cannot but be suffered before the robbery
is committed, never after.
The share of cost that the bank robber cannot pay before the robbery takes place
is the cost deriving from law breaking, which might materialize in confiscation and
incarceration. Yet though these costs are suffered after the bank robbery is
committed, or perhaps never, the risk of bearing them was part of the obstacles to
the criminal action. If, say, the bank robber is apprehended, this may mean that
ceteris paribus he underestimated the risk factor in his planning strategy.
Again the probability of apprehension and punishment may not be the result of
the bank robber’s miscalculation of the risk, but rather the result of the interaction of
a successful crime investigation and apprehension action, along with a conclusive
judicial proceeding. A high probability of apprehension along with a speedy trial
and verdict perceived as just by the community are much more likely to increase the

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offender’s cost than a law written in blood, which serves only as a linchpin for
scapegoating.8
Up to this point, I have focussed on an individual criminal business where the
lawbreaker is a sort of self-employed individual who operates in a limited territory.
Yet, the case of a one-man criminal business should not be overemphasized. More
realistically, the weekend drug seller, illustrated above as an example of a part-time
offender, may be a member of a criminal network. This hypothesis includes
additional assumptions. One is that he could himself be a drug addict, who is well
informed on persons to get in touch with, places, timing and modes of drug delivery;
the other is that he is in contact with one or more drug dealers who make up the
links of a criminal network. In between the one-man criminal business and the
collective criminal business we find the network criminal business.9
Unquestionably, qualities that are unique to a criminal network organization,
such as its anonymity and secrecy, are noted as characteristics that allow avoiding
the hugely burdensome hierarchical structure of a bureaucratic organization. A
bureaucratic organization would increase the crime business’ inner costs and it
would also involve foreseeable behaviours and hence a high probability to be
tracked down and contrasted. Another distinguishing feature worth some explora-
tion here is trust. As is the case with legal enterprises, trust is the most important
cohesive element in criminal network businesses. Because trust is a capital asset,
criminal network organizations rely on it and are aware of the fact that like any
capital it may either accumulate or depreciate. This means that if the enforcement
activity is successful, then the social capital of the criminal network is apt to
collapse. Consequently, if the criminal network is to withstand governments’
deterrence policies it must go through a re-organization policy. This fact has two
opposing effects. The new structure might, at least pro tempore, shrink the size of
the network, or change into a hierarchical organization with a likely conversion into
a mafia-style business.

4 The mafia as a trustworthy Leviathan

Criminal networks are flexible both in organizational structure and aims. The
plainest implication is that individuals join a criminal network on a voluntary basis.
The collective criminal enterprise enjoys an exclusive political dimension in the
form of an exclusive power over a territory that may range from a small
neighbourhood to the globe (as with international organizations). It is in this
predicament that the collective criminal business takes connotations typical of a
‘‘government’’ that has full control on criminal enterprises, but may also have strong
links with legitimate businesses. Behind criminal organizations there is not anything
like a contract. This points to the key role that the monopoly of force, reached

8
‘‘…of two men equally innocent, or equally guilty, the most robust and resolute will be acquitted, and
the weakest and most pusillanimous will be condemned, in consequence of the following excellent mode
of reasoning. I, the judge, must find some one guilty’’ (Beccaria 1819 p. 64).
9
c.f. Von Lampe (2002).

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through a unilateral act, plays in shaping the collective criminal business. So

interpreted, the collective criminal business can be regarded as an anti-state that,
unlike the state, supplies ‘‘public bads’’, but like the state needs revenues to cover its
costs. The mafia is exactly that. The mafia, like the state, offers protection to
legitimate businesses in exchange for money. The mafia enterprise is somewhat in
the position of a Leviathan, who does not allow his power to be jeopardized by
defectors. So for the unwritten law of the laws, the exit option automatically
involves the defector’s death. It is exactly the power of immediate punishment that
makes the state’s enforcement policy à la Beccaria-Becker ineffective. The mafia is
a dangerous adversary of the state. And, in fact, how could a democratic state find a
costlier punishment for a criminal than immediate capital punishment? To thwart
mafia businesses, the state has resorted to a policy favouring the criminal’s exit
option through a risk-abating program. In this connection, up to now, the so called
repentant program has been enacted by many nations, including Italy, to relocate
and protect witnesses who testify in criminal trials. This helps avoiding bloodletting
and any form of intimidation or criminal retaliation.
In the mafia enterprise the offender and the instigator are often different
individuals who do not even know each other. In such cases, the boss enjoys a sort
of ex ante impunity. This mechanism seems to repel any criterion of criminal
liability, which is personal.
The implication is that the boss’ subjective cost in deciding over a crime may,
thus, be conceived of as being unaffected by the body of laws and the sentencing
system. More precisely, the mafia organization is thought of as an enterprise
producing at constant objective costs. But this is not so. In fact, the high probability
of being apprehended increases the soldier’s10 subjective cost. This increase in the
soldier’s expected costs can be predicted to decrease the number of crimes, even if
the soldier is a member of a collective criminal business. It is plausible to assume
that if the soldier’s risk of apprehension increases, the collective crime business is
apt to become an enterprise producing at increasing subjective costs. And this, even
assuming that money costs are wholly shifted to the victims of the crimes. It is
rather the probability of apprehension, conviction and punishment and not the
severity of punishment that affects the incentive to commit an unlawful action.
What else does the subjective theory of opportunity costs tell us? It tells us a
thing of paramount importance. An increase in the criminal’s subjective cost would
not only involve a reduction in expenditures on law enforcement, but also a greater
safeguard of legal businesses and citizens at large. Again all this clashes with the
objective theory of costs that conceives of costs as simple money outlays.
That theory assumes that an individual facing the dilemma of choosing between
the harsh law/loose enforcement formula and the mild law/harsh enforcement
formula would certainly be inclined to choose the formula where a harsh law is
associated with a loose enforcement.11 In sum, the objective theory of costs when
10
In the mafia hierarchy a soldier is a low ranking member who serves as an ‘‘enforcer’’.
11
Levitt (1998) explains the increase in juvenile criminal actions vis à vis adults’ as dependent on the
alleged effect of the severity degree of the penal law. This thesis should be taken cum grano salis because
it seems to warrant the position that harsh laws automatically decrease juvenile crimes. Draconian laws
are, at the most, preferable to anarchy, but they should be kept at arms length in democracies.

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applied to penal law yields a law making/law enforcement formula that seems more
likely to increase criminal activity.
Born as a measure of emergency policy, the protection of the so-called mafia
repentants has turned out to be the only routinely tool to expose the mafia. This has
produced an indirect effect that has proved to be inexorably negative. The crucial
shortcoming is that the law-enforcement policy has been diluted. On a small number
of occasions, police investigating programs, sometimes with the support of
intelligence agencies, have succeeded in obtaining useful information. As a result,
the mafia repentants end up by being the primary source of information about the
mafia’s criminal business. Moreover, the impact of judicial delay may reduce the
victims’ incentives to report on the offences suffered, with the consequence that
available annual data on criminality are hardly reliable.12 There is another problem.
Mafia repentants supply only the pieces of information that are instrumental to
obtaining credibility and gaining state protection. It is exactly the selective supply of
information that allows the repentant to obtain his twofold aim: full protection from
the state; and partial protection from the mafia—too often on the basis of false
information. To the extent that the two aims are reached, the police and courts’
deterrent power decreases and so does subjective cost as an obstacle to committing a
crime. All this is revealing in the strategic use of the repentants’ cooperation with
judges. The tragic consequence is that the allegedly severe anti-mafia laws amount
simply to a prize to repentants. Hence, the only available data on mafia businesses
are those that repentants are willing to pass on to police and judges, rather than those
that would be useful to really enact an anti-mafia policy. In a sense, with mafia
repentants we find ourselves within the paradigm spelled out at the beginning,
illustrating a situation where harsh laws are loosely enforced. As we have seen, a
context of this sort is the one in which the state is less credible. In sum, if the
Leviathan of legality loses its credibility, the Leviathan of illegality will certainly
have its credibility increased. The presence of the mafia in the huge apparatus of
public bureaucracies is evidence of this losing policy.

5 Conclusions

In most of this paper I have wandered through various theoretical speculations

surrounding cost theory. I did so deliberately, because my aim has been not to
provide a quantitative formal model but, rather, to put my finger on cost theory and
make cost considerations, properly understood, central in the process of loosening
or hardening laws. Unlike the objective theory of cost, the subjective theory of
opportunity cost widens the individual behavioural spectrum since it incorporates
also non-pecuniary elements in its cost calculation. My presentation has, alas,
shown the differences between the two conceptions only in part. It would have been
enlightening to study the incentive mechanisms that are operative within a
collective criminal business, such as a mafia-style organization, so as to deduce a
theoretical framework for explaining why a non-pecuniary advantage, like gaining

12
For FBI data, see Muhlhausen (2006).

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a top position within the collective criminal enterprise, might be even more
attractive than pecuniary advantages. Such an analysis would have required a
sophisticated cross-disciplinary study that would have been well beyond the scope
of the current paper.

Acknowledgements I wish to thank Geoffrey Brennan for his written comments provided as discussant
at the ECSPC/CIDEI conference. A thank goes also to Alessandra Cepparulo, Maria Delle Grotti and
Flavio Verrechia for their assistance.

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