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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. Lusardi, Annamaria, 1998. "On the Importance of the Precautionary Saving Motive," American Economic Review, American Economic Association, vol. 88(2), pages 449-53, May.
  2. Deininger, Klaus, 2003. "Causes and consequences of civil strife - micro-level evidence from Uganda," Policy Research Working Paper Series 3045, The World Bank.
  3. 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.
  4. 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.).
  5. S. Brock Blomberg & Gregory D. Hess, 2004. "How Much Does Violence Tax Trade?," CESifo Working Paper Series 1222, CESifo Group Munich.
  6. Martin Browning & Annamaria Lusardi, 1995. "Household Saving: Micro Theories and Micro Facts," Department of Economics Working Papers 1995-02, McMaster University.
  7. Edward L. Glaeser & Bruce Sacerdote, 1996. "Why Is There More Crime in Cities?," NBER Working Papers 5430, National Bureau of Economic Research, Inc.
  8. 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.
  9. Demombynes, Gabriel & Ozler, Berk, 2002. "Crime and local inequality in South Africa," Policy Research Working Paper Series 2925, The World Bank.
  10. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169.
  11. 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.
  12. Lance Lochner, 2004. "Education, Work, And Crime: A Human Capital Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(3), pages 811-843, 08.
  13. 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.
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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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