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Economic Shocks and Crime: Evidence from the Crash of Ponzi Schemes

Author

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  • Darwin Cortés

    ()

  • Julieth Santamaria

    ()

  • Juan F. Vargas

    ()

Abstract

In November 2008, Colombian authorities dismantled a network of Ponzi schemes, making hundreds of thousands of investors lose tens of millions of dollars throughout the country. Using original data on the geographical incidence of the Ponzi schemes, this paper estimates the impact of their break down on crime. We find that the crash of Ponzi schemes differentially exacerbated crime in affected districts. Confirming the intuition of the standard economic model of crime, this effect is only present in places with relatively weak judicial and law enforcement institutions, and with little access to consumption smoothing mechanisms such as microcredit. In addition, we show that, with the exception of economically-motivated felonies such as robbery, violent crime is not affected by the negative shock.

Suggested Citation

  • Darwin Cortés & Julieth Santamaria & Juan F. Vargas, 2016. "Economic Shocks and Crime: Evidence from the Crash of Ponzi Schemes," Documentos de Trabajo 014331, Universidad del Rosario.
  • Handle: RePEc:col:000092:014331
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    References listed on IDEAS

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    Cited by:

    1. Hofstetter, Marc & Mejía, Daniel & Rosas, José Nicolás & Urrutia, Miguel, 2018. "Ponzi schemes and the financial sector: DMG and DRFE in Colombia," Journal of Banking & Finance, Elsevier, vol. 96(C), pages 18-33.

    More about this item

    Keywords

    Ponzi schemes; Economic shocks; Property crime; Colombia;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • N26 - Economic History - - Financial Markets and Institutions - - - Latin America; Caribbean
    • P46 - Economic Systems - - Other Economic Systems - - - Consumer Economics; Health; Education and Training; Welfare, Income, Wealth, and Poverty

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