How Criminal Organisations Work: Some Theoretical Perspectives
| DOI | 10.1350/pojo.2008.81.1.400 |
| Published date | 01 March 2008 |
| Date | 01 March 2008 |
| Author | Petter Gottschalk |
| Subject Matter | Article |
PETTER GOTTSCHALK
Professor of Management, Department of Leadership and
Organisation Management, Norwegian School of Management
HOW CRIMINAL ORGANISATIONS
WORK: SOME THEORETICAL
PERSPECTIVES
Organised crime has received increased attention in recent
years and criminal organisations are involved in a wide range
of crimes (Chawla & Pietschmann, 2005). To fight organised
crime, there is a need to understand the organisations behind it
and organisational theories may be helpful in this process. The
purpose of this article is to apply well-known theories such as
agency theory, alliance theory, network theory, resource-based
theory and other organisational theories in order to shed light
on criminal organisations.
Keywords: agency theory; law enforcement; network
theory; organised crime; resource-based theory; value
configuration, alliance theory
Introduction
Organised crime has received increased attention in recent years
(e.g., Abramova, 2007; Borgers & Moors, 2007; Finckenauer,
2005; Garoupa, 2007; Joyce, 2005; Lampe, 2005; Symeonidou-
Kastanidou, 2007). According to Chang et al. (2005) a criminal
organisation is traditionally thought of as a monopolistic firm.
Criminal organisations are involved in a variety of organised
crimes (Chawla & Pietschmann, 2005) and, according to the
European Union (Elvins, 2003), transnational criminal organisa-
tions are strengthening their international criminal contacts and
targeting the social and business structure of European society,
for example through drug trafficking and money laundering.
To fight organised crime, there is a need to understand
criminal organisations. For too long, law enforcement agencies
around the world seem to have been more concerned about tough
law enforcement actions than appropriate law enforcement
actions based on new insights about organised crime. To under-
stand criminal organisations, applying organisational theories to
them may be helpful (Liddick, 1999). The purpose of this article
is to shed light on criminal organisations by applying well-
known theories such as agency theory, alliance theory, network
theory, resource-based theory and others.
46 The Police Journal, Volume 81 (2008)
DOI: 10.1358/pojo.2008.81.1.400
Agency Theory
Agency theory has broadened the risk-sharing literature to
include the agency problem that occurs when cooperating parties
have different goals and divisions of labour. The cooperating
parties are engaged in an agency relationship defined as a
contract under which one or more persons (the principal(s))
engage another person (agent) to perform some service on their
behalf which involves delegating some decision-making author-
ity to the agent (Jensen & Meckling, 1976). Agency theory
describes the relationship between the two parties using the
metaphor of a contract.
According to Eisenhardt (1985), agency theory is concerned
with resolving two problems that can occur in agency relation-
ships. The first arises when the desires or goals of the principal
and agent conflict and it is difficult or expensive for the principal
to verify what the agent is actually doing. The second problem is
risk sharing, which arises when the principal and agent have
different risk preferences. The conflict problem arises when the
two parties do not share productivity gains, while the risk-
sharing problem may be the result of different attitudes towards
the use of new technologies. Because the unit of analysis is the
contract governing the relationship between the two parties,
the focus of the theory is on determining the most efficient
contract governing the principal–agent relationship given
assumptions about people (e.g., self-interest, bounded rationality,
risk aversion), organisations (e.g., goal conflict of members), and
information (e.g., information is a commodity which can be
purchased).
Garoupa (2007) has applied agency theory to criminal organ-
isations. He models the criminal firm as a family business with
one principal and several agents. He has in mind an illegal
monopoly where it is difficult to detect and punish the principal
unless an agent is detected. Furthermore, it is assumed that
agents work rather independently so that the likelihood of
detection of one agent is fairly independent from another. An
example of such agents is drug dealers in the street with the
principal being the local distributor. Another example would be
agents as extortionists or blackmailers distributed across the city
with the principal being the coordinator of their activities provid-
ing them with information or criminal know-how.
Alliance Theory
Partnership, often referred to as an alliance, has been noted as a
major feature of criminal organisations. Partnership can reduce
The Police Journal, Volume 81 (2008) 47
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