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Crime and Output: Theory and Application to the Northern Triangle of Central America

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  • Dmitry Plotnikov

Abstract

This paper presents a structural model of crime and output. Individuals make an occupational choice between criminal and legal activities. The return to becoming a criminal is endogenously determined in a general equilibrium together with the level of crime and economic activity. I calibrate the model to the Northern Triangle countries and conduct several policy experiments. I find that for a country like Honduras crime reduces GDP by about 3 percent through its negative effect on employment indirectly, in addition to direct costs of crime associated with material losses, which are in line with literature estimates. Also, the model generates a non-linear effect of crime on output and vice versa. On average I find that a one percent increase in output per capita implies about ½ percent decline in crime, while a decrease of about 5 percent in crime leads to about one percent increase in output per capita. These positive effects are larger if the initial level of crime is larger.

Suggested Citation

  • Dmitry Plotnikov, 2020. "Crime and Output: Theory and Application to the Northern Triangle of Central America," IMF Working Papers 2020/002, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2020/002
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    References listed on IDEAS

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    1. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54, National Bureau of Economic Research, Inc.
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    3. Chien-Chieh Huang & Derek Laing & Ping Wang, 2004. "Crime And Poverty: A Search-Theoretic Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(3), pages 909-938, August.
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    5. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 279-298.
    6. World Bank, 2011. "Crime and Violence in Central America : A Development Challenge - Main Report [Crimen y violencia en Centroamérica: un desafío para el desarrollo (Vol. 1) - Informe principal]," World Bank Publications - Reports 2744, The World Bank Group.
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    Cited by:

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