It might be thought that if mafiosi protect individuals effectively, the overall number of lemons sold in a society will be reduced. Despite the apparent paradox, however, the opposite is true. This can be shown in a variety of ways (discussed in Chapter 7), but the most general demonstration runs this way. A seller who does not live off only occasional customers and is concerned about his future income has a rational interest in behaving honestly and acquiring a good reputation (Dasgupta 1988; see also Axelrod 1984). Even if dishonest, he still has an interest in sacrificing short-term benefits for the sake of prospective gains. Fundamental to this argument is the assumption that a good standing in business is easily destroyed. The question is whether mafia protection alters this tendency toward self-enforcing honesty.

QUESTION: How exactly does mafia protection undermine the reputation mechanism that normally enforces honest selling? Chapter 7 presumably spells this out. Builds on: "Mafia protection is analytically distinct from the protected commodity."

Diego Gambetta, The Sicilian Mafia The Busi…, loc. 66