Economic shocks and crime: Evidence from the crash of Ponzi schemes

Darwin Cortés, Julieth Santamaría, Juan F. Vargas

Research output: Contribution to journalArticlepeer-review

8 Scopus citations

Abstract

In November 2008, Colombian authorities dismantled a network of Ponzi schemes, making hundreds of thousands of investors lose tens of millions of dollars throughout the country. Using original data on the geographical incidence of the Ponzi schemes, this paper estimates the impact of their breakdown on crime. We find that the crash of Ponzi schemes differentially exacerbated crime in affected districts. Confirming the intuition of the standard economic model of crime, this effect is only present in places with relatively weak judicial and law enforcement institutions, and with little access to consumption smoothing mechanisms such as microcredit. In addition, we show that, with the exception of economically-motivated felonies such as robbery, violent crime is not affected by the negative shock.

Original languageEnglish (US)
Pages (from-to)263-275
Number of pages13
JournalJournal of Economic Behavior and Organization
Volume131
DOIs
StatePublished - Nov 1 2016

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics
  • Organizational Behavior and Human Resource Management

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