Political Uncertainty and Crime in Transition Economies*

Political Uncertainty and Crime in Transition Economies Two stylized facts are often used to characterize the economies in transition: an increase in the crime level and frequent government changes, where the party in power is replaced by another party with a different, and often opposite, ideological orientation. We investigate the impact on agents’ honesty when agents perceive the future form of government as uncertain, and also know that their own collective decisions will effect the government’s choice of type. Furthermore, we assume that the form that the government will take depends, in part, on the collective behavior of the agents. By endogenizing the joint decisions made by the agents, as well as the government, we derive the social consequences of these choices, the induced level of crime. Using the level of crime permits us to investigate comparative statics for possible policy implications. We show that the complex interactions between the government and the agents leads to some non-intuitive results.