Crime and Poverty: A Search-Theoretic Approach

Numerous studies document, on the one hand, a positive correlation between crime and unemployment and, on the other hand, a negative correlation between the crime rate and educational attainment levels within given communities. We study this phenomenon in the context of a search-equilibrium model, in which agents choose between formal employment and pursuing crime related activities (theft). Prior to making this ‘occupational choice,’ agents first undertake costly schooling which raises their productivity upon formal employment. We show that crime acts, in essence, as a tax on human capital by affecting the probability that a worker’s earnings (possessions) are subsequently appropriated. There are multiple equilibria. High crime, low levels of educational attainment, long spells of unemployment, and poverty are correlated across them. JEL Classification: I2, J2,J3,J4,J6.