IZA DP No. 2710: Unemployment and Gang Crime: Could Prosperity Backfire?
published as 'Unemployment and gang crime: can prosperity backfire?' in: Economics of Governance, 2011, 12 (3), 259 - 273
Empirical evidence reveals that unemployment tends to increase property crime but that it has no effect on violent crime. To explain these facts, we examine a model of criminal gangs and suggest that there is a substitution effect between property crime and violent crime at work. In the model, non-monetary valuation of gang membership is private knowledge. Thus the leaders face a trade-off between less crime per member in large gangs and more crime per member in small gangs. Unemployment increases the relative attractiveness of large and less violent gangs engaging more in property crime.