06 02 Understanding the Determinants of Crime by Ayse İ mrohoro ğ

Working papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views stated herein are those of the authors and are not necessarily those of the Federal Reserve Bank of Cleveland or of the Board of Governors of the Federal Reserve System. In this paper, we use an overlapping generations model in which individuals are allowed to engage in both legitimate market activities and criminal behavior in order to assess the role of certain factors on the property crime rate. In particular, we investigate whether the following could be capable of generating large differences in crime rates that are observed across countries: differences in the unemployment rate, the fraction of low-human-capital individuals in an economy, the probability of apprehension, the duration of jail sentences, and income inequality. We find that small differences in the probability of apprehension and in income inequality can generate quantitatively significant differences in the crime rates across similar environments.