The main issues of the economics of criminal organizations are very well exemplified in the collection of papers edited by Fiorentini and Peltzman (1995). A relevant contribution is, in particular, the one by Grossmann (1995), who developed the organized crime as a competitor of the state in the provision of public services. This modeling strategy implies an upper limit to the “price” that the state itself might charge to taxpayers. A similar trade off is likely to arise in waste disposal choices. For example, a high unit fee might lead citizens to resort to illicit waste disposal managed by criminal organizations. Another crucial contribution under this respect is the one by Garoupa (2001). The author extends the optimal law enforcement literature to organized crime and models the criminal organization as a vertical structure where the principal extracts some rents from the agents through extortion, concluding that, at least as long as extortion is a costless transfer from individuals to the criminal organization, the existence of extortion might even be social welfare improving. Of course, this result changes when the criminal organization resorts to threats and violence.
The aim of our paper is to build on the cited literature and explicitly model law enforcement and  organized crime in a general equilibrium setting with legal and illegal waste disposal. In particular, our objective is to enrich the Fullerton and Kinnaman (1995) paper by the inclusion of an enforcement sector as well as a criminal organization a la Garoupa, and investigate how the corresponding optimal waste policy changes.