Economic effects of crime

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Economic effects of crime

Crime imposes huge economic effects on European societies. These economic effects of crime are, in essence, the opposite of the positive economic effects of urban development (or spatial development). A high and sustainable crime rate in a region will effect the local economy. This relationship is illustrated below:

File:Economics impact of crime 2.jpg
Figure: Illustration of relationship between crime, the urban object and society

The economic effects of crime form a subcategory of economic impact of security threats.

Relevance

As mentioned above, considerable costs are incurred in relation to crime. Crime not only leads to material and immaterial costs for those who have become victimized, but crime also forces local and national authorities to spend billions on the prevention of crime and the detection, persecution and punishment of criminals. For the Netherlands, for example, the costs of crime are estimated to be 20.2 billion euro in 2005[1], approximately 4.1 percent of the GDP. Brand and Price (2000)[2] estimate the costs of crime to be between £35 and £60 billion per year for England and Wales.

The identification and the estimation of the costs of crime have received broad attention in economic literature and research, but the economic effect(s) and impact of crime on society is still an underexposed field of interest. One important reason of this lack of available studies, is that it is very difficult to quantify and monetarise the costs of crime with the help of economic tools, and especially the benefits (since they are in most of the cases non-economic, e.g., health benefits, the benefits of living in a safe area, etc.). Moreover, while economic analysis (such as social cost-benefit analysis) is common in many contexts, the results of depend largely on the used methodologies, including the underlying (subjective) assumptions and measured effects.[3]. Nevertheless, it remains that there is an economic impact related to crime (in both a direct and indirect way).

Crime is a major part of every urban society, but it is not always as relevant for urban planners (since crime is always present). In order to help the urban planner decide when the costs of crime should be considered, the Securipedia pages on urban objects do not only address the economic function of urban objects, but also the economic dimension of the more specific security threats. However, in general one could say that crime in residential and retail areas has a significant economic impact due to its direct and indirect economic impact.

Types of costs and economic effects of crime

Economists use various definitions and terminology for categorizing the economic impact of crime. The two main categories (used in Securipedia) are the primary and secondary economic impact of crime, also referred to as direct and indirect economic effects[4].

Primary economic impact of crime

In general, economists use two types of methods to further categorize the (primary) costs of crime[5]. The first way is by defining the subject who bears the effects (victims, potential victims, society etc.). From an economic point of view, criminal offences can be aimed against:

  • individuals/households
  • the commercial sector/companies[6]
  • the public sector/society

A second approach of categorizing is by breaking down the costs in relation to individual incidents (Davidson, 1999[7]). This way, the costs of crime are categorized as:

  1. in anticipation of crime: mainly costs of precaution measures to avoid crime such as locks, alarm prevention programs and surveillance.
  2. as a consequence of crime: for instance, loss of property, medical and health care costs, victim support etc.
  3. in response to crime: costs considering police, prosecution, court proceedings, sanctions etc.

The identification and the estimation of the costs of crime is undertaken by several scientific researchers.

Secondary economic impact of crime

Crime not only leads to financial or physical damage and prevention costs, but also indirectly influences the local/regional and national economy of a country (the so-called secondary economic impact). According to Detotto and Otranto (2010)[8],“crime acts like a tax on the entire economy: it discourages domestic and foreign direct investments[9]. On a macro-economic level crime influences:

  • economic growth;
  • income;
  • labor force participation;
  • income spent on security measures; and
  • reallocation of resources creating uncertainty and inefficiency.

On a more local and regional level, economists define the following types of impact:

  • business impact (crime reduces competitiveness of companies and investments)
  • impact on property value
  • tourism impact
  • impact on quality of life/social capital

According to Tita, Petras and Greenbaum (2006)[10] “crime serves as an important catalyst for change in the socio-economic composition of communities. The effect crime has on the local property value is one of those catalyst effects. A study by Ihlanfeldt and Mayock (2009)[11], for example, concludes that a 10% increase in violent crimes within a neigbourhood is reducing property values by as much as 6%. Other research points out that criminal offences such as vandalism and graffiti (also) have a significant negative impact on real estate prices[12]. Furthermore, in 2011, a UK police website, where users can view the number of criminal offences at street level, led to worries among house owners and real estate agents that the house prices drop if crime rates are relatively high[13]. Another effect of crime is that residents become less committed to their communities, causing the ‘social fibre’ of the community to be weakened. An example of the loss of social capital is that residents of neighbourhoods with a criminal reputation are judged to be associated with criminal activities, leading (amongst others) to stigmas that, for example, prevent those people from finding jobs[14].

Related subjects

This subject is closely related to:

Footnotes and references

  1. ↑ SEO (2007).De kosten van criminialiteit.
  2. ↑ Brand, S. and R. Price (2000). The economic and social costs of crime. Home Office Research Study 217.
  3. ↑ An example: How does one economically quantify and monetarise the reputation of local police with regards to enforcing safety?
  4. ↑ Primary economic impact (or direct effects) are generally defined as the initial, immediate economic output generated by a specific cause (in this case a criminal offence). Secondary economic impact (or indirect effects) are generated each time a subsequent transaction is made, for example, the impact of crime on the real estate value in the neighborhood.
  5. ↑ Brand, S. and R. Price (2000). The economic and social costs of crime. Home Office Research Study 217.
  6. ↑ Busines companies have to deal with crime, ranging from shoplifting and vandalism to piracy and counterfeiting. These crimes are committed by employees (theft, fraud, money laundering) and by outsiders (shoplifting, vandalism, etc.
  7. ↑ Davidson, N. (1999). Costing Burglary Reduction, in Brand, S. and R. Price (2000).The economic and social costs of crime. Home Office Research Study 217.
  8. ↑ Detotto,C. and E. Otranto (2010). Does crime affect Economic growth? KYKLOS, Vol.63–August 2010-No.3, 330-345.
  9. ↑ Foreign direct investment (FDI) is a direct investment by a business or enterprise in a foreign economy. The motives of FDI are diverse, for example, to reduce export costs (less transport and export tariffs) or to take advantage of local labour forces and know-how.
  10. ↑ Tita, G., T. Petras, and R. Greenbaum (2006). Crime and Residential Choice: A Neighborhood Level Analysis of the Impact of Crime on Housing Prices. Journal of Quantitative Criminology Vol 22, No 4, Pp 299-317.
  11. ↑ Ihlanfeldt, K., T. Mayock (2009).Crime and Housing Prices. Department of Economics and DeVoe Moore Center, Florida State University
  12. ↑ Gibbons, S. (2004). The costs of urban property crime. The Economic Journal, 114 (499). ISSN 0013-0133.
  13. ↑ See: http://www.guardian.co.uk/money/2011/feb/01/police-crime-website-house-prices
  14. ↑ UNODC and World Bank (2007). Crime, Violence, and Development: Trends, Costs, and Policy Options in the Caribbean. Report No. 37820.

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