Seminal work by Becker (1968), Erlich (1973, 1981), Vandaele (1978), Cook (1986) Cameron (1988), Van Dijk (1994) and Garoupa (1997) posits that the supply of criminal offending is a function of four factors: (1) the probability (risk) of capture, (2) the severity of the sanction if captured, (3) the expected profit from a criminal transaction and (4) the opportunity cost of a criminal transaction. In this rational offender framework, a potential offender commits crimes when the expected benefits of offending outweigh the expected costs. Changes in any one of these variables will affect the crime rate. Public policies designed to reduce externalities associated with criminal offending typically seek to increase the probability an offender is captured and the severity of the sanction. Thus, relatively little scholarly attention has focused on the effects of changes in the opportunity cost and profit for potential offenders. We posit that increases in crime--particularly robbery--in the United States in 2005 and 2006 were caused by an exogenous shock to the crime market that increased the expected profit of a criminal transaction, concurrently decreasing the degree to which potential victims engage in private precautions. We present evidence that increases in violent offending in the United States in 2005 and 2006 are consistent with a secular change in the behavior of potential victims, specifically in the increased propensity of potential victims to carry valuable iPods and other personal media devices. In such cases, standard policy instruments used to effect a reduction in crime may be insufficient or less than optimally efficient.
Neoclassical economic theory posits that there is a market for crime that behaves much like any other market. (1) Crime markets experience periods of substantial growth, such as was the case in the US in the late 1980s and early 1990s, and periods of substantial decline, as was experienced between 1992 and 2004. The primary mechanisms used by society to regulate this market are the police and prisons, which are expected to deter and incapacitate potential criminals. An increase in the number of police is expected to increase the expected probability an offender will be arrested for a crime, and an increase in prison populations increases the expected severity of the sanction. (2) Most policy discussions about interventions into the crime market focus on these two policy mechanisms. As a result, when crime rates change, speculation about the cause first turns to deterrence and incapacitation mechanisms. (3) To those unsatisfied by deterrence and incapacitation explanations, exogenous shocks to the crime market--specifically shocks that affect the supply of crime such as changes in economic conditions, demographics and cultural norms--are generally the only alternative explanation. (4) Often overlooked is the degree to which changes in the expected profits of a criminal transaction and changes in private precautions can affect on crime rates.
Since private precautions are known to be produced sub-optimally in the presence of a quasi-public good such as police, private precautions are considered to be a relatively inefficient means of addressing crime. (5) However, while changes in private precautions devoted to crime protection may be a relatively inefficient means of altering the amount of crime in the long-run, in the short-run large-scale changes in private precaution brought on by an exogenous shock may nevertheless be expected to have a meaningful effect. Likewise, abrupt changes in consumer behavior, such as a secular increase in the value of items individual's carry in public increases the expected profit of a criminal transaction. This signals suppliers of crime to rapidly increase their crime production.
In 2005 and 2006, tens of millions of personal media devices, particularly iPods, (6) were sold to US consumers. These expensive devices were displayed openly in public reducing search costs for potential offenders. …