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Does Crime Affect Economic Decisions? An Empirical Investigation of Savings in a High-Crime Environment

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  • De Mello Joao M

    ()
    (PUC-Rio)

  • Zilberman Eduardo

    ()
    (New York University)

Abstract

While most economic studies of crime have examined the determinants of criminal activity, this paper asks the reverse question: how does crime affect economic behavior? We study the relationship between crime and savings in the cities of São Paulo, a wealthy but crime-ridden state in Brazil. Our empirical results suggest that property crime is associated with an increase in savings. However, we do not observe a relationship between violent crime and savings, findings that are consistent with the theoretical explanation as to why crime induces thriftiness. These results are robust to an extensive sensitivity analysis that includes: 1) the inclusion of a large set of demographic covariates when examining cross-city variation; 2) accounting for city and period fixed effects when studying cross-city variation over time; 3) accounting for sample selection; and 4) splitting the sample by population size and income. We provide evidence that the association is not driven by reallocation towards bank deposits in general, which are safer assets in high-crime environments. Finally, we find a similar impact using household consumption and savings data.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 8 (2008)
Issue (Month): 1 (December)
Pages: 1-28

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Handle: RePEc:bpj:bejeap:v:8:y:2008:i:1:n:52

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  1. Demombynes, Gabriel & Ozler, Berk, 2002. "Crime and local inequality in South Africa," Policy Research Working Paper Series 2925, The World Bank.
  2. Edward L. Glaeser & Bruce Sacerdote, 1996. "Why Is There More Crime in Cities?," NBER Working Papers 5430, National Bureau of Economic Research, Inc.
  3. Christiano A. Coelho & João Manoel Pinho de Mello & Leonardo Rezende, 2007. "Are Public Banks pro-Competitive? Evidence from Concentrated Local Markets in Brazil," Textos para discussão 551, Department of Economics PUC-Rio (Brazil), revised Sep 2007.
  4. Julie Berry Cullen & Steven D. Levitt, 1999. "Crime, Urban Flight, And The Consequences For Cities," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 159-169, May.
  5. Lusardi, Annamaria, 1998. "On the Importance of the Precautionary Saving Motive," American Economic Review, American Economic Association, vol. 88(2), pages 449-53, May.
  6. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Discussion Papers 96-01, University of Copenhagen. Department of Economics.
  7. Lance Lochner, 2004. "Education, Work, and Crime: A Human Capital Approach," NBER Working Papers 10478, National Bureau of Economic Research, Inc.
  8. Rony Pshisva & Gustavo A. Suarez, 2006. "'Captive markets': the impact of kidnappings on corporate investment in Colombia," Finance and Economics Discussion Series 2006-18, Board of Governors of the Federal Reserve System (U.S.).
  9. Rafael Di Tella & Ernesto Schargrodsky, 2004. "Do Police Reduce Crime? Estimates Using the Allocation of Police Forces After a Terrorist Attack," American Economic Review, American Economic Association, vol. 94(1), pages 115-133, March.
  10. S. Brock Blomberg & Gregory D. Hess, 2006. "How Much Does Violence Tax Trade?," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 599-612, November.
  11. Deininger, Klaus, 2003. "Causes and consequences of civil strife - micro-level evidence from Uganda," Policy Research Working Paper Series 3045, The World Bank.
  12. Edwards, Sebastian, 1996. "Why are Latin America's savings rates so low? An international comparative analysis," Journal of Development Economics, Elsevier, vol. 51(1), pages 5-44, October.
  13. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169.
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Cited by:
  1. Singh, Prakarsh, 2011. "Impact of terrorism on investment decisions of farmers: evidence from the Punjab insurgency," MPRA Paper 33328, University Library of Munich, Germany.

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