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The Effect of Stolen Goods Markets on Crime: Evidence from a Quasi - Natural Experiment

  • D'Este, Rocco

    (Department of Economics, University of Warwick)

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    This paper analyses the causal effect of the availability of stolen goods markets on theft crimes. Motivated by the richness of anecdotal evidence, we study this overlooked determinant of crime’s production function through the lens of pawnshops, a widespread business that offers secured loans to people, with items of personal property used as collateral. The endogeneity of pawnshops to crime is addressed in multiple ways. First, we strengthen the hypothesis that pawnshops deal with stolen goods by exploiting the properties of a panel of 2176 US counties from 1997 to 2010. Then, we detect causality exploiting the exogenous rise in the price of gold in a quasi - natural experiment fashion. Specifically, the identification strategy relies on the exogeneity of the interaction between the price of gold, constantly demanded by pawnbrokers in the form of jewels that are melted down to be transformed in a bar of precious metal, and the initial concentration of pawnshops to the county. Conservative estimates show that a one standard deviation increase in gold price generates a 0.05 standard deviation increase in the effect of pawnshops on burglaries and robberies. The mechanism behind the causal effect is corroborated by numerous falsification tests on other crimes that disprove the possibility that pawnshops might cause crime through channels other than the demand for stolen goods.

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    File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2014/twerp_1040b_deste.pdf
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    Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 1040.

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    Date of creation: 2014
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    Handle: RePEc:wrk:warwec:1040
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    Web page: http://www2.warwick.ac.uk/fac/soc/economics/

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