In economic development settings, organized crime is one of the most pressing economic issues. Indeed, the presence of illegal
organizations, which exacerbates the other inefficiency factors, contributes to the regional heterogeneity of the Italian economy.
In light of these considerations, the purpose of this research project is to conduct a comprehensive analysis of the impact of crime on
the technical efficiency of firm. In order to accomplish this, we will examine the economics of crime in three stages:
a) Create a composite indicator of crime based on three profiles of how illegal activity affects the firm efficiency. We will specifically
use a survey on perceived crime risk in terms of being the target of threats, intimidation, or extortion attempts; receiving an offer to
sell their business under unusual conditions; or obtaining a loan outside of official channels. These crime risk factors limit firms'
ability to pursue virtuous growth. This phase will employ a robust methodology, namely Data Envelopment Analysis (DEA), that for
this aim it is also known as benefit-of-doubt.
b) Applying an advanced econometric technique based on either a parametric (i.e., Stochastic Frontier Analysis) or non-parametric
(i.e., DEA) technique to evaluate the impact of crime indicators (composite and at single profile level) on firm technical efficiency on
either the value-added or cost side;
c) Investigating the potential channels through which illegal activities impede business performance. We expect that an unfavorable
social environment will induce firm managers to pursue a prudential firm strategy that ultimately stifles the firm's propensity for
innovation. Consequently, the empirical analysis will establish a correlation between R&D expenditures and the crime index
estimated in the first stage of research.
The potential economic and social consequences would be undeniable. Indeed, determining whether and how crime is an effective
corporate inefficiency factor, as well as assessing potential threats related to firm innovation aptitude, could point to the best path
for increasing legal protection and avoiding recourse to unofficial credit providers, thereby avoiding economic and social costs at the
firm and country levels. As a result, the research findings will be especially relevant for policy makers, practitioners, and academics
worldwide, as organized crime affects both developing and developed countries.