From the industrialized countries to newly industrializing and developing countries of the world, violence and crime threaten social stability and are becoming major obstacles in development. It is a global phenomenon that results in the loss of property and/or lives, creates misery and is one of the most harmful social problems throughout the world. Several scholars estimate these costs with $160 billion up to $3,500 billion annually for the United States. Given these tremendous negative effects, it has become of central interest to policy makers and scholars of economics, sociology, and criminology. Understanding the determinant factors of crime is critical and provides a powerful tool to drastically reduce costs to society. Furthermore, there is no doubt that the business cycle has an omnipresent effect on economic activity, employment, individuals, and a variety of other social and economic variables.
Table of Contents
1. Introduction
2. Stylized Facts
3. The Business Cycle and Crime
3.1 Economics of Crime
3.1.1 Theoretical Frameworks
3.1.2 The Argument of Cantor and Land (1985)
3.1.3 The Problem of Identification
3.2 Labor Market Opportunities and Crime
3.2.1 Simple Linear Regression Models
3.2.2 Instrumental Variable Approaches
3.2.3 Alternative Strategies
3.3 Economic Growth and Crime
4. Combining the Results
5. Discussion and Conclusion
Research Objectives and Core Themes
This master's thesis investigates the complex relationship between the business cycle and criminal activity, with a primary focus on evaluating how unemployment and labor market opportunities influence crime rates. The work aims to reconcile diverging empirical evidence by analyzing theoretical frameworks, methodological approaches, and the role of socioeconomic variables.
- The theoretical relationship between economic performance and crime supply.
- Methodological challenges in identifying causal links (e.g., omitted variable bias).
- Evaluation of "opportunity" versus "motivation" effects of unemployment.
- Synthesis of empirical findings across different crime subcategories and regions.
Excerpt from the Book
3.1.1 Theoretical Frameworks
The first economic approach to crime, developed by Becker (1968), assumes that individuals are opportunistic beings who compare the expected return when using their time for criminal actions with the expected benefits when spending their time for other activities (e.g., working in the labor market). If the expected return for committing crime is higher than for working in the labor market, individuals will engage in criminal activity. Thus, the sum of all criminal actions of an individual can be modeled as a function of the probability of being arrested, the associated stiffness of sanctions, the expected benefits, the expected return to legal activities, and some other variables. In this case, the expected returns to legal activities are incorporated as opportunity costs in the crime supply function. Therefore, higher expected benefits of legitimate occupations lead to higher opportunity costs and, thus, reduce the number of criminal acts of an individual. In contrast, lower returns to labor decrease the opportunity costs and consequently increase the sum of criminal offenses (Becker, 1968, p. 9). The expected benefits of work within the legal sector mainly depends on individual skills, abilities, working experience, and on the general economic conditions. In this sense, unemployment seems the obvious choice as an indicator for the health of the economy: if unemployment is high, the expected return for working in the labor market is low for many agents. As a result, individuals try to compensate the lower benefits to legitimate work by increasing their supply of criminal actions. Ehrlich (1973, pp. 524-529) further develops this framework into a one-period uncertainty model where individuals allocate their time between legal and illegal activities.
Summary of Chapters
1. Introduction: Outlines the societal relevance of crime as a global problem and introduces the economic perspective on criminal behavior.
2. Stylized Facts: Provides a descriptive overview of crime trends in the U.S. and Europe, highlighting the categorization of property and violent crimes.
3. The Business Cycle and Crime: Examines theoretical models, specifically focusing on how labor market conditions influence individual decisions between legal and illegal activities.
4. Combining the Results: Synthesizes empirical evidence from various studies to evaluate the consistency of the relationship between unemployment and crime across different crime categories.
5. Discussion and Conclusion: Reflects on the limitations of existing research and suggests future directions for empirical analysis regarding the business cycle and crime.
Keywords
Business Cycle, Unemployment, Crime Rates, Property Crime, Violent Crime, Labor Market Opportunities, Opportunity Effect, Motivation Effect, Becker Model, Cantor and Land, Instrumental Variables, Economic Growth, Socioeconomic Factors, Deterrence, Empirical Review.
Frequently Asked Questions
What is the core focus of this thesis?
The thesis provides a comprehensive literature review on the empirical and theoretical relationship between the business cycle—specifically unemployment—and criminal activities.
What are the primary themes discussed?
The work covers theoretical frameworks of criminal behavior, the impact of labor market opportunities, identification problems in empirical studies, and the distinction between property and violent crime.
What is the main research objective?
The objective is to determine how economic fluctuations affect crime supply and to clarify why empirical findings in the literature often show conflicting or weak results.
Which methodology is applied?
The research is a systematic literature review that evaluates various econometric techniques, including Ordinary Least Squares (OLS), Instrumental Variable (IV) approaches, and General Method of Moments (GMM).
What does the main body address?
It addresses the historical development of crime economics, the "opportunity" versus "motivation" hypothesis, and the identification of causal links using panel data and instrumental variables.
Which keywords characterize the work?
Key terms include business cycle, unemployment, crime supply, instrumental variables, opportunity effect, and motivation effect.
How does the author explain the "opportunity effect"?
The opportunity effect suggests that during recessions, individuals have fewer job prospects and spend more time at home, which increases guardianship and thereby reduces the vulnerability of targets, lowering property crime.
What is the "motivation hypothesis" in this context?
The motivation hypothesis argues that a decrease in legitimate economic prospects increases the incentive to engage in crime as a substitute for lost income, particularly as support structures for the unemployed deteriorate over time.
- Quote paper
- Felix Müller (Author), 2018, The Relationship between the Business Cycle and Crime. A Literature Review, Munich, GRIN Verlag, https://www.grin.com/document/1034826
