Behavior, Human Capital and the Formation of Gangs

Behavior in dysfunctional social groups is often regarded by social scientists as irrational in nature. We focus on many features of behavior within the street gang, also noting the existence of other gang‐like groups, and show how apparently irrational behavior can signal the possession of valuable human capital. We contend that gangs are formed around particular traits of direct value to the group, and therefore of indirect value to the gang member, and construct a model with a separating equilibrium consistent with the existence of a large gap between the characteristics of gang members and the rest of society. Policy implications include a deduction that increasing the opportunities for gang members outside of life in the gang, perhaps through offering an amnesty, might reduce gangs but will unambiguously make remaining gangs even nastier.