Abstract
There are management and organizational problems common to both legal and illegal businesses, such as moving one party to act in the interest of another rather than his own. In principal-agency theory, the party that wants someone else to do a job on his behalf is called the “principal” and the other party is called the “agent”. Principal-agency theory tries to find solutions to real and potential conflicts that arise from such transactional arrangements. We believe principal-agency theory has great potentials for understanding the operation and interpersonal relationships of criminal enterprises, in addition to the structural arrangements (e.g., a disorganized crime market) and the social network perspectives. Using a case study of Chinese loan sharking and cannabis cultivation in the Netherlands, we seek to make a theoretical contribution to existing literature on organized crime by focusing on how different individuals within a criminal enterprise negotiate the most efficient transactional arrangement in a principal-agent relationship amidst the uncertainties of an illicit market environment. We specifically look at four phases of the criminal enterprise studied: the selection of agents by the principal, attempts to bind these agents to the principal, potential conflicts and finally the solution of any problems. Incidentally, our study also gives insight in the less well-researched topic of loansharking.
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Notes
An exception is an unpublished master thesis carried out by R. van Putten on applying agency theory to certain types of money laundering (van Putten 2012).
For example, the National Security Council, the Royal Canadian Mounted Police, the Australian Crime Commission https://www.whitehouse.gov/administration/eop/nsc/transnational-crime/strategy, http://www.rcmp-grc.gc.ca/pubs/ccaps-spcca/organi-crime-structure-eng.htm, https://www.crimecommission.gov.au/publications/intelligence-products/crime-profile-fact-sheets/organised-crime-groups.
Van Putten (2012) also looked at an additional phase before the hiring phase. She called it the deciding phase, the reason to hire outside expertise. Such reasons are difficult to fathom, however, and are therefore not included in our study of the Chinese principal.
This is a difference with a previous analyzed set of loansharking records (Soudijn and Zhang 2012). It appeared loansharks asked for 10 % a week, not stipulating a fixed time period.
At the time of the police raid, 1 kg of hemp could sell for about €3280. The judge accepted these figures.
It appears that the confiscation of the said ledger worried the principal. When he was finally arrested and in prison, his conversations with fellow agents were also recorded. They were afraid they would have trouble collecting the outstanding money because they did not know exactly how much people still had to pay.
Leaving aside the threats and beatings he had administered to borrowers slow in repaying outstanding loans.
Although some organized criminals have admitted that they had become addicted to the rush of doing something illegal and did not want to miss the action (Hobbs 2013; Klerks 2000), however, these individuals started out with a financial motive, and it is unlikely that they are doing it profit-free, just for the thrill.
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Soudijn, M.R.J., Zhang, S.X. Principal-Agency Theory in Illegal Markets: Cooperation and Conflict Among Chinese Loansharks. Asian Criminology 11, 231–247 (2016). https://doi.org/10.1007/s11417-015-9229-7
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DOI: https://doi.org/10.1007/s11417-015-9229-7