Peace Dividends: Criminal Governance, Rational Violence, and Economic Development

In this article, I show that in contexts where the state fails to deliver order and security, criminal organizations can paradoxically facilitate economic development. I consider the case of the Primeiro Comando da Capital “First Capital Command” (PCC)—a Brazilian prison gang that has achieved hegemony over the criminal market of a large region and become the de facto regulator of violence and organized crime in São Paulo. Employing a robust difference-in-differences approach on granular administrative employment data, firm creation registries, and satellite-based nighttime luminosity (as a proxy for informal economic activity), I provide causal evidence that the PCC’s stable, rule-based criminal governance significantly increased local economic opportunities. My findings challenge conventional wisdom on the negative economic externalities of crime, demonstrating that hegemonic, institutionalized, and non-extractive criminal governance can generate positive economic externalities by reducing violence and uncertainty.