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

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  • Cortés, Darwin
  • Santamaría, Julieth
  • Vargas, Juan

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

  • Cortés, Darwin & Santamaría, Julieth & Vargas, Juan, 2016. "Economic Shocks and Crime: Evidence from the Crash of Ponzi Schemes," Research Department working papers 843, CAF Development Bank Of Latinamerica.
    • Handle: RePEc:dbl:dblwop:843
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    Cited by:

    1. Corvalan, Alejandro & Pazzona, Matteo, 2019. "Persistent commodity shocks and transitory crime effects," Journal of Economic Behavior & Organization, Elsevier, vol. 158(C), pages 110-127.
    2. Sebastián García-Andrade, 2019. "Efectos del rebalanceo de los índices de J.P. Morgan en 2014 sobre los rendimientos de los TES en moneda local," Borradores de Economia 1094, Banco de la Republica de Colombia.
    3. Ankel-Peters, Jörg & Bruederle, Anna & Roberts, Gareth, 2022. "Weather and Crime—Cautious evidence from South Africa," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 3(1), pages 1-22.
    4. Fone, Zachary S. & Friedson, Andrew I. & Lipton, Brandy & Sabia, Joseph J., 2020. "The Dependent Coverage Mandate Took a Bite Out of Crime," IZA Discussion Papers 12968, IZA Network @ LISER.
    5. Gao,Nan & Ma,Yuanyuan & Xu,L. Colin, 2020. "Credit Constraints and Fraud Victimization : Evidence from a Representative Chinese Household Survey," Policy Research Working Paper Series 9460, The World Bank.
    6. Okedina, Jellil & Masih, Mansur, 2018. "The nexus between poverty and crime: evidence from India," MPRA Paper 109263, University Library of Munich, Germany.
    7. 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.
    8. R Pickering & K Y Lim, 2024. "Does crime type matter in understanding the nexus between universal credit and crime? Evidence from England and Wales," Economic Issues Journal Articles, Economic Issues, vol. 29(1), pages 93-131, March.
    9. Eduardo Ferraz & Rodrigo Soares & Juan Vargas, 2022. "Unbundling the relationship between economic shocks and crime," Chapters, in: Paolo Buonanno & Paolo Vanin & Juan Vargas (ed.), A Modern Guide to the Economics of Crime, chapter 8, pages 184-204, Edward Elgar Publishing.
    10. repec:osf:socarx:285tv_v1 is not listed on IDEAS
    11. Prabhat Mittal & Amrita Kaur & Pankaj Kumar Gupta, 2021. "The Mediating Role of Big Data to Influence Practitioners to Use Forensic Accounting for Fraud Detection," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 7(1), pages 47-58.
    12. Jawadi, Fredj & Mallick, Sushanta K. & Idi Cheffou, Abdoulkarim & Augustine, Anish, 2021. "Does higher unemployment lead to greater criminality? Revisiting the debate over the business cycle," Journal of Economic Behavior & Organization, Elsevier, vol. 182(C), pages 448-471.
    13. Gaurav Khanna & Carlos Medina & Anant Nyshadham & Jorge Tamayo & Nicolas Torres, 2023. "Formal Employment and Organised Crime: Regression Discontinuity Evidence from Colombia," The Economic Journal, Royal Economic Society, vol. 133(654), pages 2427-2448.

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    Keywords

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    JEL classification:

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

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