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

Conclusion

• Consider potential externalities when doing Impact Evaluation studies (positive and negative)

• Thinking of these is challenging, but can lead to better public policy design, and better impact evaluation studies