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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.

Suggested Citation

  • De Mello Joao M & Zilberman Eduardo, 2008. "Does Crime Affect Economic Decisions? An Empirical Investigation of Savings in a High-Crime Environment," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-28, December.
    • Handle: RePEc:bpj:bejeap:v:8:y:2008:i:1:n:52
    DOI: 10.2202/1935-1682.1878
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    2. Sukanya Basu & Sarah Pearlman, 2017. "Violence and migration: evidence from Mexico’s drug war," IZA Journal of Migration and Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 7(1), pages 1-29, December.
    3. Carl Hase & Johannes Kasinger, 2024. "The Pass-through of Retail Crime," Papers 2407.07201, arXiv.org, revised Oct 2024.
    4. Catalina Gómez Toro, 2014. "La relación virtuosa de la seguridad y la inversión extranjera directa en Colombia (1994-2013)," Ensayos de Política Económica, Departamento de Investigación Francisco Valsecchi, Facultad de Ciencias Económicas, Pontificia Universidad Católica Argentina., vol. 2(2), pages 62-87, Octubre.
    5. Daniel Mej√≠a & Pascual Restrepo, 2010. "Crime and Conspicuous Consumption," Documentos CEDE 7716, Universidad de los Andes, Facultad de Economía, CEDE.
    6. Claudio Detotto & Pulina Manuela, 2010. "Testing the effects of crime on the Italian economy," Economics Bulletin, AccessEcon, vol. 30(3), pages 2063-2074.
    7. Detotto Claudio & McCannon Bryan C. & Vannini Marco, 2014. "Understanding Ransom Kidnappings and Their Duration," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 14(3), pages 849-871, July.
    8. Elissaios Papyrakis, 2013. "Environmental Performance in Socially Fragmented Countries," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 55(1), pages 119-140, May.
    9. Mejía, Daniel & Restrepo, Pascual, 2016. "Crime and conspicuous consumption," Journal of Public Economics, Elsevier, vol. 135(C), pages 1-14.
    10. Verteramo Chiu, Leslie J. & Turvey, Calum G., 2015. "Perception and Action in a Conflict Zone: a Study of Rural Economy and Rural Life amidst Narcos in Northeastern Mexico," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205447, Agricultural and Applied Economics Association.
    11. Singh, Prakarsh, 2011. "Impact of terrorism on investment decisions of farmers: evidence from the Punjab insurgency," MPRA Paper 33328, University Library of Munich, Germany.
    12. Rose Ann Camille C. Caliso & Jamil Paolo S. Francisco & Emmanuel M. Garcia, 2020. "Broad Insecurity and Perceived Victimization Risk," Journal of Interdisciplinary Economics, , vol. 32(2), pages 160-179, July.

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    JEL classification:

    • D00 - Microeconomics - - General - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • Z19 - Other Special Topics - - Cultural Economics - - - Other

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