How do criminal groups organize, operate, and govern in Denmark? We argue that organized crime groups face governance challenges in the form of principal-agent problems and transaction costs. Based on interviews with law enforcement officers, former gang members, and prisoners, we provide evidence for how people involved in crime respond to these organizational dilemmas. We find that the more severe the principal-agent problem, the more gangs vet possible members during recruitment. We also find that as transaction costs rise, people who are engaged in illicit activities that are more complicated will rely more on internal structure and centralization. Our findings support existing rational choice theories of criminal organizations.

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