Pax Monopolista or the Rule of Law ? The enforcer’s dilemma in reputational criminal wars

Why do states often refrain from enforcing the law against powerful criminal organizations (OCGs)? Although typically attributed to corruption, I argue that forbearance can be optimal even for an honest state seeking to minimize violence. I develop a formal model where OCG strength is uncertain, and costly conflict builds reputations for strength that deters challengers. In this environment, enforcement has opposing effects: it weakens OCGs but can also undermine reputational deterrence, inadvertently creating power vacuums and escalating violence. The analysis reveals a fundamental trade-off – mediated by reputation-induced selection into conflict – between the extensive (likelihood) and intensive (intensity) margins of conflict. States rationally choose between a Pax Monopolista (targeting weak groups to leverage strong groups’ reputations) and the Rule of Law (indiscriminate enforcement), depending on state capacity and the interim reputation that the strongest OCG acquires in equilibrium. Weak state capacity favors a Pax Monopolista. Crucially, selectively targeting the strongest group is never the optimal strategy for minimizing short-term violence.