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Externalities and Crime
Marco Gonzalez-Navarro
University of Toronto
Workshop Internacional de Avaliação de Impacto de Políticas Públicas March 20, 2013
What is property crime?
• Person A takes person B’s property without B’s consent (home burglary, auto theft, etc.)
• This is not only a simple transfer of goods. Often theft involves violence:
▫ Very high human life cost
▫ Psychological damage
What is property crime?
• The high costs of crime lead to victim precautions affecting:
▫ How cities develop (i.e. gated communities, high- rises)
▫ How homes are built (walls and fences around every home, electrification)
▫ Where people spend their time (shopping malls vs public spaces)
What are externalities?
• In a mutually beneficial transaction, person A pays B for a good. Both parties are happy to trade.
• But sometimes a third person is affected. For example: ▫ A factory sells cloth to people. Business is great.
However, while producing, the factory dumps pollution into the river.
▫ The fishermen that use the river are affected by the transaction, because their fish are dead!
▫ This pollution is an externality. ▫ An externality is a harm imposed on a third party
when A and B transact
Externalities in Crime
• Crime victim precautions can impose lots of externalities on others!
• Example:
▫ Steering wheel locks used to prevent auto theft (The Club)
▫ Imagine 2 cars, one has a Club, the other does not. When one person purchases the Club, this increases the theft risk of the other vehicle. This is an externality!
So what?
• The social value of spending to divert crime is low! We care about reducing aggregate crime, not displacing it.
So what?
• When crime is displaced, this affects estimates of program impact
• Example: Lets say we study the effect of UPPs on crime.
• A “naïve” design compares neighborhoods with UPP to others without.
• But if opening an UPP in the treatment neighborhood leads to criminals engaging in crime in non-UPP neighborhoods, the estimate will be too large!
• Once you treat the whole city, the effects may be much smaller than they are initially
Is this really important?
• Gonzalez-Navarro (2013, AEJ: Applied) documents substantial geographical externalities in auto theft
• Lojack (stolen vehicle recovery service)
• In Mexico was sold in certain models of all new Ford vehicles in some states, but not others
• Thieves knew which cars had Lojack and which did not
Geographical externalities
• So they stopped stealing Lojack equipped vehicles (50% reduction)
• But surrounding places, where Lojack was not available, experienced large increases in theft risk
• In the case of Mexico, many cars are stolen for their parts, if it became difficult to steal cars in one place, they simply stole them in another
• Auto theft is easily displaced!
What could have been done?
• The problem was that thieves could tell which cars were protected and which were not
• If no decals were allowed, and sold to all cars, then Lojacks would deter theft of all cars, not just those protected
What could have been done?
• This is exactly how Lojack was sold in the US and Ayres and Levitt (1998, QJE) find large reductions in auto theft, both for protected and unprotected vehicles!
• The same device created a positive externality!
• In the US the problem is too few Lojacks were installed
In general what can be done in the
presence of externalities? • Treat the whole unit (so that it covers potential
displacement areas)
• Example: In Germany, a large percentage of motorcycle theft was for joyriding (just for fun, by amateurs, motorcycle abandoned after a few hours)
• When obligatory helmet laws were introduced, motorcycle theft fell substantially: You must be using a helmet not to be stopped by police and joyrider thieves were not walking around with helmets