Crime and Conspicuous Consumption | 2014
Joint with Daniel Mejia
Forthcoming, Journal of Public Economics
We study the distorting effect that property crime has on consumption decisions. Using an incomplete information model, we argue that consuming conspicuous goods reveals information to criminals who are seeking bountiful victims. For any given individual this information increases the likelihood of being victimized. Consequently, property crime reduces the consumption of visible goods even in the case of goods that cannot be stolen but that nonetheless carry information about a potential victim’s wealth. To test this mechanism we exploit the large decline in property crime in the U.S. during the 90s. Analysis of 1986 to 2003 data in the U.S. Consumer Expenditure Survey reveals that households located in states that experienced sharper than average reductions in property crime significantly increased their consumption of visible goods that are not generally stolen. Our findings hold when we instrument the decline in property crime during the 90s using a variety of strategies.