Activity"
BY: NACI H. MOCAN
University of Colorado at Denver
National Bureau of Economic Research (NBER)
STEVE BILLUPS
University of Colorado at Denver
JODY R. OVERLAND
Affiliation Unknown
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=206149
Date: January 2000
Contact: NACI H. MOCAN
Email: Mailto:nmocan at carbon.cudenver.edu
Postal: University of Colorado at Denver
Campus Box 181
PO Box 173364
Denver, CO 80217-3364 USA
Phone: (303)556-8540
Fax: (303)556-3547
Co-Auth: STEVE BILLUPS
Email: Mailto:sbillups at carbon.cudenver.edu
Postal: University of Colorado at Denver
Denver, CO 80217-3364 USA
Co-Auth: JODY R. OVERLAND
Email: not available
Postal: Affiliation Unknown
ABSTRACT:
This paper presents a new, dynamic economic model of criminal
activity. Individuals are endowed with legal and criminal human
capital. Potential incomes in legal and criminal sectors depend
on the level of the relevant human capital, the rate of return,
and random shocks. Both types of human capital can be enhanced
by participating in the relevant sector. Legal human capital can
also be enhanced through savings. Each type of human capital is
subject to depreciation. Individuals maximize expected
discounted lifetime utility, which depends on consumption. In
this two-stage dynamic stochastic model, in each period the
individual decides in which sector to participate (legal or
illegal), and after the realization of income in that period, he
decides on the optimal amount of consumption. A particular
decision (e.g., participation in the criminal sector) has
implications both for future decisions as well as the choices
available to the individual in later periods.
The model allows analyses of the effects of recessions,
neighborhood effects, various imprisonment/rehabilitation
scenarios, risk aversion, and time preferences on criminal
behavior. It provides new insights, which are different from
existing models, and it is able to explain the declining
propensity of individuals to commit crimes over time.
JEL Classification: C61, J24, K42