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Does crime affect economic decisions? An empirical investigation of savings in a high-crime environment

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  • João Manoel Pinho de Mello

    () (Department of Economics PUC-Rio.)

  • Eduardo Zilberman

    () (Department of Economics, New York University)

Abstract

While most economic studies of crime have focused on its determinants, we study the reverse question: does crime affect economic behavior? Being such an important social phenomenon, one would expect crime to affect economic decisions. Using local data on crime rates and savings per capita in a high-crime environment, we document a striking empirical relationship: crime induces savings. Our paper is one of the first to successfully relate crime to an economic outcome. This result is robust to an extensive sensitivity analysis, which include: 1) controlling to a large set of demographic covariates; 2) accounting for the fact that crime and savings may be determined jointly; 3) measuring savings in different ways; 4) accounting for the presence of possible outliers; 5) weighting the data according to population; 6) accounting for spatial correlation; and, finally, 7) estimating the model for different sub-samples of cities. Our estimates indicate that only property, not violent, crime induces savings, which is consistent with the theoretical explanations on why crime would increase thriftiness

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Bibliographic Info

Paper provided by Department of Economics PUC-Rio (Brazil) in its series Textos para discussão with number 524.

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Length: 31p.
Date of creation: May 2006
Date of revision: Oct 2008
Handle: RePEc:rio:texdis:524

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Keywords: Crime; Economic Behavior; Savings;

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References

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  1. Richard B. Freeman, 1996. "Why Do So Many Young American Men Commit Crimes and What Might We Do about It?," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 25-42, Winter.
  2. Ana Carla A. Costa & João M. P. De Mello, 2008. "Judicial Risk and Credit Market Performance: Micro Evidence from Brazilian Payroll Loans," NBER Chapters, in: Financial Markets Volatility and Performance in Emerging Markets, pages 155-184 National Bureau of Economic Research, Inc.
  3. Ciro Biderman & João Manoel Pinho de Mello & Alexandre A Schneider, 2006. "Dry law and homicides: evidence from the São Paulo metropolitan area," Textos para discussão 518, Department of Economics PUC-Rio (Brazil), revised Oct 2008.
  4. John J. Donohue & Steven D. Levitt, 2001. "The Impact Of Legalized Abortion On Crime," The Quarterly Journal of Economics, MIT Press, vol. 116(2), pages 379-420, May.
  5. Ana Carla A. Costa & João M. P. de Mello, 2006. "Judicial Risk and Credit Market Performance: Micro Evidence from Brazil Payroll Loans," Working Papers Series 102, Central Bank of Brazil, Research Department.
  6. Norman Loayza & Klaus Schmidt-Hebbel & Luis Servén, 1999. "What Drives Private Saving Across the World?," Working Papers Central Bank of Chile 47, Central Bank of Chile.
  7. Paolo Buonanno, 2003. "The Socioeconomic Determinants of Crime. A Review of the Literature," Working Papers 63, University of Milano-Bicocca, Department of Economics, revised Nov 2003.
  8. Lance Lochner, 2004. "Education, Work, and Crime: A Human Capital Approach," NBER Working Papers 10478, National Bureau of Economic Research, Inc.
  9. 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.
  10. Jeffrey A. Miron & Jeffrey Zwiebel, 1995. "The Economic Case against Drug Prohibition," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 175-192, Fall.
  11. Demombynes, Gabriel & Ozler, Berk, 2005. "Crime and local inequality in South Africa," Journal of Development Economics, Elsevier, vol. 76(2), pages 265-292, April.
  12. Conley, T. G., 1999. "GMM estimation with cross sectional dependence," Journal of Econometrics, Elsevier, vol. 92(1), pages 1-45, September.
  13. Kenneth Burdett & Ricardo Lagos & Randall Wright, 2003. "Crime, Inequality, and Unemployment," American Economic Review, American Economic Association, vol. 93(5), pages 1764-1777, December.
  14. Gary S. Becker & Yona Rubinstein, 2011. "Fear and the Response to Terrorism: An Economic Analysis," CEP Discussion Papers dp1079, Centre for Economic Performance, LSE.
  15. Besley, Timothy, 1995. "Property Rights and Investment Incentives: Theory and Evidence from Ghana," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 903-37, October.
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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.
  2. Daniel Mejía & Pascual Restrepo, 2010. "Crime and Conspicuous Consumption," DOCUMENTOS CEDE 007716, UNIVERSIDAD DE LOS ANDES-CEDE.
  3. Claudio Detotto & Pulina Manuela, 2010. "Testing the effects of crime on the Italian economy," Economics Bulletin, AccessEcon, vol. 30(3), pages 2063-2074.
  4. Ciro Biderman & Jo�oMP DeMello & Alexandre Schneider, 2010. "Dry Laws and Homicides: Evidence from the S�o Paulo Metropolitan Area," Economic Journal, Royal Economic Society, vol. 120(543), pages 157-182, 03.

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