Price Of Gang Wars
February 9, 2001
Gang wars have an enormous social cost. Additionally, these street wars occur quite regularly, nearly 25 percent of the time that a gang exists. Yet, gang wars are also economically damaging to the gangs themselves. A recent study analyzes the economics behind these street wars -- based on the actual records of a now-defunct street gang.
Street wars are expensive to the gangs. These battles:
- Keep drug customers away, resulting in a 25 to 30 percent drop in prices and quantities sold.
- Result in a 50 percent drop in revenues with accompanying drops in profits.
Then why do gangs fight each other? The authors offer two theories. One is that gangs lack the necessary diplomacy. Due to the highly volatile nature of gangs and the aggressiveness of some of their lower-level members, gang wars can result from a minor quarrel.
On the other hand, some gang wars can be profitable. There are efficiency gains by expanding territory. A successful seizure of territory can increase drug revenues by $23,000 per month. This is because increased land area reduces the competition since most customers come on foot.
However, the human costs are extremely high. Over four years, a typical gang member can expect:
- A 25 percent chance of being killed.
- Two non-fatal injuries.
- And six arrests.
Despite these risks, gangs still recruit and battle among themselves. The authors calculate that normal gang members value their own lives at only 0.2 percent to 10 percent of the normal value placed on human life ($5 million).
Source: "Gang Economics," Economic Intuition, Fall 2000; based on Steven D. Levitt and Sudhir Alladi Venkatesh, "An Economic Analysis of Drug-Selling Gang's Finances," Quarterly Journal of Economics, August 2000.
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