Third-Party Policing on Organized Crime: Evidence from the Yakuza

Does increased enforcement deter criminal organizations from their activities and, more broadly, crime? In recent years, Japan has cracked down on criminal organizations known as the yakuza. Yakuza Exclusion Ordinances (YEO) are third-party policing policies that apply economic sanctions on the yakuza by preventing citizen and corporations from paying off the yakuza. In this paper, we examine intended and unintended effects of YEO. Difference-in-differences estimates show that YEO decrease the number of yakuza members but increase the financial damages of a new type of fraud (money transfer scams). We also find that these effects are stronger in prefectures that are less yakuza infested. These findings are explained as follows. The decrease in yakuza membership inevitably increases the number of former yakuza members, but they are likely to commit profitable crimes because of the absence of other economic opportunities. In addition, our finding that YEO have stronger effects in less yakuza-infested prefectures is consistent with the idea that yakuza syndicates attempt to maintain their advantages against others by maintaining their membership. Therefore, more yakuza members leave their syndicates in less yakuza-infested prefectures, and these former yakuza members engage in quick-buck fraud.