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The illicit cultivation of cannabis is widespread in a number of rural regions in New Zealand, and there is known to be a large domestic black market for the drug [...], This paper draws on the emerging economic theory of organized crime to investigate the role organized criminal gangs play in outdoor illicit cannabis cultivation in New Zealand. Organized criminal groups are most likely to control illicit markets where there are cost advantages from larger-scale production, the need for specialized skills, capital equipment or large amounts of startup capital, and visible targets for violence aimed at discouraging competition. Examination of the illicit production of cannabis suggests the productivity gains that could be achieved from larger-scale cannabis cultivation are undermined by the difficulties of monitoring crops, the vulnerability of crops to ground and aerial detection, and legal penalties based on size of crop. The effectiveness of violence in discouraging competition in cannabis cultivation is constrained by the difficulties of identifying rival cultivators and discovering the location of rivals' cannabis plots. Several reasons are put forward to explain why the New Zealand police nevertheless claim that cannabis cultivation in New Zealand is controlled by gangs. KEY WORDS: Illicit cannabis cultivation, gangs, organized crime, violence, New Institutional Economics.

The study of the operation of illicit-drug markets has been a subject of interest for a range of social scientists (e.g., Moore, 1977; Goldstein, 1989; Goldstein et al., 1989; Weisheit, [...], One issue that has emerged from the study of the operation of illicit-drug markets is the question of how these markets avoid collapsing into anarchy, as neither drug users nor drug dealers can call on the police and courts to enforce the terms of transactions. Recent advances in economic theory, collectively known as New Institutional Economics (NIE), are used to identify informal market institutions that might help sustain reliable transacting in street-level drug markets. High search costs in street-level drug markets compared with legal markets is identified as an environmental factor that may encourage exchange parties to honor the terms of illicit-drug transactions even though there is no third-party enforcement. High search costs may also account for the high levels of quality fraud reported in illicit-drug markets. KEY WORDS: Street-level drug markets, transactional reliability, search costs, New Institutional Economics, stateless economic systems.