Over at Marginal Revolution, Alex Tabarrok has a really fascinating post on the Mexican Mafia:

The Mexican Mafia is a fairly small prison gang (perhaps 150-300 made members) and it has significant operational control only within prisons in Southern California yet the Mexican Mafia is extremely powerful. In fact, the MM taxes hundreds of often larger Southern California street gangs at rates of 10-30% of revenues. How can a prison gang tax street gangs? In Governance and Prison Gangs (also here), a new paper in the APSR, David Skarbek explains the structure, conduct and performance of the Mexican Mafia.

The key to the MM’s power is that most drug dealers will sooner or later, usually sooner, end up in prison. Thus, the MM can credibly threaten drug dealers outside of prison with punishment once they are inside prison. Moreover, prison is the only place where members of many different gangs congregate. Thus, by maintaining control of the prison bottleneck, the MM can tax hundreds of gangs.

I love when private organizations take over public duties, but I guess this is an exception…

For a kind, warm and fuzzy account of informal economies and businesses that have to operate around the government, please check out my friend Zach’s superb blog about his time in Kenya.