Mixed markets and crime

This paper specifies and solves a two-stage, game theoretic model of a mixed market for crime control. In the first stage of the model, private targets and the government choose levels of policing. In the second stage, criminals choose targets and the severity of the crimes that they commit.The paper's key results are as follows. First, private policing can both divert crime to targets that lack private protection and also increase the severity of the crime that these less-protected targets suffer. Second, an increase in private policing reduces the aggregate expenditure on traditional policing. This is an instance of a political incentive externality, where private policing affects the objective function of the government. Specifically, it reduces the level of traditional policing that is consistent with the Samuelson condition for efficient provision of a public good. Third, the substitution of private for public policing carries with it a change in the technology of policing. In effect, private policing leads to a shift from enforcement and punishment towards monitoring and target hardening. This, in turn, may lead to an increase in the severity of crime. Fourth, the mixed policing equilibrium is inefficient, and, in some situations, mixing may reduce the utility of all targets.     

Self-protection against crime: what do schools do?

Most economic research about self-protection against crime concentrates on self-protection by individuals, households, and stores – private economic agents. We know much less about self-protection in public economic settings, such as by schools; this article takes a step towards learning more. An economic agent who self-protects benefits by reducing vulnerability to crime but incurs self-protection costs whether a victimization occurs or not; should a crime occur, the agent further bears the cost of the victimization itself. The agent, a school administrator in this application, must determine the optimal level of self-protection within this environment. Empirical results obtained using data from the 2004 and 2006 School Survey on Crime and Safety (SSOCS) show that schools self-protect (use professional security personnel) much in line with theoretical predictions. Among other findings, schools located in larger cities and that have a larger and older student body self-protect more prevalently than other schools, while schools with more academically able students self-protect less than schools with less productive student inputs.     

Crime and moral hazard: Does more policing necessarily induce private negligence?

Even risk-neutral individuals can insure themselves against crimes by combining direct expenditure on security with costly diversification. In such cases — and even when one of these options is infeasible — greater policing often actually encourages private precautions.     

THE USE OF PPP ARRANGEMENTS IN STREET LIGHTING: A WIN‐WIN OPTION?

Street lighting is a classic example of a public good, and governments are extensively involved in its provision. Adequate lighting facilitates both car traffic and personal safety while improving an urban area's character. However, many systems are mismanaged and obsolete, incurring high energy costs and emissions with relatively low lighting quality. Public authorities facing budget constraints often find retrofitting old street‐lighting systems challenging. They have two options: either direct in‐house, public‐authority renovation or contracting with a private company through a public–private partnership (PPP). Although private‐sector‐participation approaches vary, most public authorities can now enter into a street‐light modernization PPP agreement. That can be a win‐win option for both the public and private sectors. The upfront investment is small and operational expenses outweigh capital expenses, generating lower payback periods and energy‐cost reduction with light‐emitting diode (LED) technology. Little public expenditure is necessary when private partners are compensated via shared energy savings. We analyze the Detroit street‐light PPP – the United States’ first – and find that PPPs are practical for retrofitting US street lights and in other countries where they are antiquated.     

Private protection and public policing

This paper looks at situations in which public and private protection are complementary, that is, when private protection must be coordinated with public protection to be effective. For example, home alarms deter theft by being connected to a local police station: if the police do not respond to a home alarm, the home alarm on its own is virtually useless in halting a crime in action. We make a distinction between gross and net complementarity and substitution, where the latter takes into account the effect on the crime rate. We show that when public and private protection are complements, the optimal provision of public protection trades off the manipulation effect of encouraging private protection with the compensatory effect of providing protection to households that do not privately invest. We discuss the implications of our results for policy and empirical research in this area.     

UNDERSTANDING THE INTERSTATE EXPORT OF CRIME GUNS: A GRAVITY MODEL APPROACH

In 2009, the Bureau of Alcohol, Tobacco, Firearms and Explosives successfully traced over 145,000 guns recovered at crime scenes in the United States. Of these guns, more than 43,000 were originally sold in a different state from which they were recovered. What factors may explain the interstate movement of these crime guns? This article uses the well‐known gravity model of international trade to estimate interstate flow of crime guns. Empirical results show that, like trade of goods and services between nations, the traced movement of crime guns between states is proportionate to the economic sizes of trading partners and is inversely proportionate to the distance between them. In addition, the presence of gangs in one or both states tends to increase the flow of crime guns. Finally, differences in state gun laws tend to affect trade flows with crime guns flowing from states with “weak” gun laws to states with “strict” gun laws. (JEL K00, K42)     

Quality and Welfare in a Mixed Duopoly with Regulated Prices: The Case of a Public and a Private Hospital

Abstract. Hospital markets are often characterized by price regulation and the existence of different ownership types. Using a Hotelling framework, this paper analyses the effect of heterogeneous objectives of hospitals on quality differentiation, profits and overall welfare in a price‐regulated duopoly with exogenous symmetric locations. In contrast to other studies on mixed duopolies, this paper shows that, in this framework, privatization of the public hospital may increase overall welfare. This holds if the public hospital is similar to the private hospital or less efficient and competition is low. The main driving force is the single‐regulated price which induces under‐provision (over‐provision) of quality of the more (less) efficient hospital compared with the first best. However, if the public hospital is sufficiently more efficient and competition is fierce, a mixed duopoly outperforms both a private and a public duopoly due to an equilibrium price below (above) the price of the private (public) duopoly. This medium price discourages over‐provision of quality of the less efficient hospital and – together with the non‐profit objective – encourages an increase in quality of the more efficient public hospital.     

A Theoretical Model of the Effects of Public Funding on Saving Decisions by Charitable Nonprofit Service Providers

Why do charitable nonprofit, service‐providing organizations save? What are the tradeoffs between using income to build up cash reserves and serving more clients? Saving may generate income, protect the organization against a drop in donations, and increase the organization's chances of survival. Saving, though, may affect the likelihood that nonprofits receive private and public funding. We model the relationship among private and public income, economic conditions, and nonprofit savings. We find that anticipation of government help during difficult times tends to reduce the amount of saving done by the nonprofit. This effect is strengthened if government officials view unspent donations as indicative of a lack of need. Both these effects provide a strong incentive for nonprofits to spend on current consumption rather than to save for the future, and thus to increase the burden on the public purse.     

Does private security affect crime?: a test using state regulations as instruments

Private security is employed to deter criminals from attacking specific targets, presumably not to produce general deterrence. Indeed, private security generates negative spillovers as criminals substitute non-protected targets for protected targets. Specific deterrence efforts may generate positive spillovers too, however, by raising the expected cost of committing crimes, thereby reducing crime in an area. The hypothesis that private security deters crime at the state level is tested. The demand for private security in an area is expected to be simultaneously dependent on the level of crime; so, an instrumental variables approach is employed in a panel-data fixed-effect model using state-level data from 1998 to 2010. Instruments for the amount of private security are state-wide licensing regulations for firms specializing in providing security, since these regulations should influence entry. Some state-level measures of violent and property crime are shown to be negatively and significantly related to increases in private security, suggesting that private security generates a general deterrence effect.     

How widespread are nonlinear crowding out effects? The response of private transfers to income in four developing countries

This article investigates the relationship between household income and private transfers received in developing countries. If private transfers are unresponsive to household income, there is less likelihood of expansions in public social security crowding out private transfers. Most literature finds that private transfers are unresponsive, but this may be because responses have been obscured by the methods that ignore nonlinearities. Threshold regression techniques find such nonlinearity in the Philippines and scope for serious crowding out, with 30–80% of private transfers potentially displaced for low-income households (Cox et al., 2004). To see if these nonlinear effects occur more widely, semiparametric and threshold regression methods are used to model private transfers in four developing countries – China, Indonesia, Papua New Guinea and Vietnam. The results reported in this article suggest that nonlinear crowding out effects are not important features of transfer behaviour in these countries. The transfer derivatives under a variety of assumptions only range between 0 and ?0.08.     

Credible Currency: A Constitutional Perspective

By contrast to private banks, public monetary authorities – central banks and currency boards – have limited credibility in making redemption or fixed-exchange-rate commitments. Their sovereign immunity obviates legal penalties for devaluing, and their monopoly status weakens reputational penalties. The softness of central bank promises invites speculative attack and currency crises. Privatization and decentralization of exchange-rate commitments provides a more credible currency by making redemption commitments legally enforceable and reputable. This contrast sheds light on (1) the breakdown of the classical gold standard and (2) the costs and benefits of dollarization. JEL Classification: E42, H42.     

Centralization,Fiscal Federalism,and Private School Attendance*

A CGE model is used to analyze the impact of public school financing on private school attendance. The common perception that public school finance centralization will necessarily lead to greater private school attendance is not correct in such a model—even when that centralization involves an extreme equalization as in California. Furthermore, if centralization is less dramatic (as in most states), declines in private school attendance are even more pronounced. This weakens the speculation that low exit rates to private schools in centralizing states imply that general public school quality does not drop as a result of such centralization.     

Prices for cash and cash for prices? Theory and evidence on convenient pricing

A transaction between a seller and a buyer incurs a payment cost. The payment cost is borne by the seller, depending on the payment instrument the buyer chooses, cash or card. Card payment is more costly than cash payment, so the seller prefers that the buyer pays cash. In this article, we study the strategy of the seller setting a convenient price, which simplifies transactions and pushes the buyer to pay cash. The theoretical analysis, which models both the seller and the buyer in a game setting, derives two propositions: (1) the seller is more likely to set a more convenient price and (2) the buyer is more likely to pay cash a more convenient price. The empirical analysis supports both propositions. Thus, sellers adopt a convenience pricing strategy – prices for cash – and this strategy pushes buyers to pay cash – cash for prices.     

TIME, MONEY, AND OPTIMAL CRIMINAL PENALTIES

The economic approach to optimal criminal penalties measures the welfare effects of crime and punishment in dollar terms, ignoring differences in the marginal utility of money among people. This paper alternatively proposes using time as the unit of measure in determining optimal criminal penalties, measuring the costs and benefits of crime in hours or days instead of dollars. The policy implications differ substantially from those in the existing economic literature. Equal prison terms impose similar time costs on all individuals rather than being more costly for those with higher foregone earnings. Equal fines impose the same cost on all individuals in the dollar-based economic models but in a time-denominated system are costlier to those who require more time to earn the money to pay the fines. In principle, one can use either money or time in setting penalties. However, time-based penalties are more consistent with the fundamental and widely held principles of justice on which the U.S. legal system rests.     

Sovereign Wealth Funds and National Security: The Dog that Will Refuse to Bark

Concerns have been raised that Sovereign Wealth Funds (SWFs) might be used by governments to advance international political goals, raising red flags about their possible economic and national security consequences. These concerns are overstated. Warnings about national security threats related to foreign investment have been sounded repeatedly throughout history, but they have invariably been false alarms. Although there are novel attributes about SWFs in contemporary world politics, establishing their national security consequences is much more difficult than it might seem. And in those instances where theoretical connections between SWFs and “high politics” can be established, on closer inspection the SWFs appear to be intervening variables – manifestations of other pathologies – rather than the root cause of the postulated problem. The potential geopolitical problems caused by SWFs are the result of shifts in wealth in the international system, and not by the establishment or functioning of wealth funds.     

ASSESSING THE IMPACTS OF LABOR MARKET AND DETERRENCE VARIABLES ON CRIME RATES IN MEXICO

Many studies examine the relationship between crime rates and various economic and/or sociodemographic variables in high income countries, but similar efforts for middle and low income countries are less common. Utilizing an 8‐year panel data sample for all 32 states in Mexico, this study assesses the impact of Mexican labor market and deterrence variables on various Mexican crime rates. The principal results indicate that: (1) State gross domestic product (GDP) per capita has ambiguous effect on crime rates under different conditions. Both wages and unemployment rates are negatively linked with crime rates. (2) Although the Mexican judicial and public security systems are widely believed to be ineffective, increased federal police forces and incarceration rates are associated with lower crime rates, but higher public security expenditure per capita is associated with higher crime rates. (3) The impacts from labor market and deterrence variables presented in (1) and (2) continue to hold under the Fox administration as well as for non‐border states. Their respective impacts diminish, however, under the Calderon administration as well as for border states because of the small number of observations. Overall, the results indicate that increasing average wages, federal police forces, and incarceration rates would have significant impacts on reducing crime rates in Mexican states. (JEL O54, K42)     

Agglomeration,city size and crime

This paper analyzes the relationship between crime and agglomeration where the land, labor, product, and crime markets are endogenously determined. Our main theoretical findings are the following: (i) better accessibility to jobs decreases crime in the short run but may increase crime in the long run; (ii) the per-capita crime rate increases with city size; (iii) when allowing for endogenous policing, lower commuting costs make the impact of police on crime more efficient.     

控制权稀释威胁影响上市公司并购支付方式选择吗

当现金并购支付方式优先于股票被大量采用时,以往研究认为这源于主并方控股股东避免控制权稀释导致控制权私利受损的动机,忽视了并购发生时和并购后有持续攫取控制权私利的潜在需要。本文构建了一个基于控制权私利动态性的并购支付方式选择的理论框架。对2004-2007年上市公司774个并购事件的实证分析表明,并购支付决策是控股股东在控制权稀释威胁、债务融资约束及预期并购后所面临的监督之间权衡的结果,前者促进了现金支付偏好,而后两者均减低了该偏好。所隐含的政策启示是,上市公司并购支付方式创新本质上要与抑制控制权私利活动结合起来。     

Terror and the costs of crime

This paper argues that terrorism, beyond its immediate impact on innocent victims, also raises the costs of crime, and therefore, imposes a negative externality on potential criminals. Terrorism raises the costs of crime through two channels: (i) by increasing the presence and activity of the police force, and (ii) causing more people to stay at home rather than going out for leisure activities. Our analysis exploits a panel of 120 fatal terror attacks and all reported crimes for 17 districts throughout Israel between 2000 and 2005. After controlling for the fixed-effect of each district and for district-specific time trends, we show that terror attacks reduce property crimes such as burglary, auto-theft, and thefts-from-cars. Terror also reduces assaults and aggravated assaults which occur in private homes, but increases incidents of trespassing and “disrupting the police.” Taken as a whole, the results are consistent with a stronger deterrence effect produced by an increased police presence after a terror attack. A higher level of policing is likely to catch more people trespassing, and at the same time, reduce the number of property crimes. The decline in crimes committed in private houses is likely an indication that the tendency for individuals to stay home after a terror attack further increases the costs of crime.     

UNPREPARED FOR FINANCIAL SHOCKS: EMERGENCY SAVINGS AND CREDIT CARD DEBT

We measure readiness to face emergency expenses using data from a representative survey of U.S. consumers. Our main findings are as follows: (1) there is substantial heterogeneity in financial readiness, with lowest‐income, least‐educated, unemployed, and Black consumers most likely to have $0 saved for emergency expenses; (2) the amount of emergency savings is correlated with payment choice: Less financially prepared individuals use cash more and credit cards less, compared to those with higher emergency savings; (3) while people with low emergency savings rely more on cash than credit cards, they revolve more debt, and so a financial shock is costlier for them; (4) changes in income from one year to the next do not appear to affect the likelihood of revolving on credit cards or increase the amount borrowed, although the data were collected before the COVID‐19 pandemic. For those with little or no savings and already financially vulnerable, even a temporary financial shock—an unexpected negative income shock (such as a layoff or a short‐term government shutdown) or an unexpected expenditure (such as a medical expense or a car repair)—could have severe financial consequences, exacerbated by the high cost of borrowing on credit cards. (JEL D12, D14, D15, E21)